10.16.10

TerreStar bankruptcy: who will provide the DIP?

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 7:58 pm by timfarrar

Reports have now emerged that a TerreStar bankruptcy filing may take place as soon as Sunday, October 17, with “one creditor” potentially providing about $75M in DIP financing. It would not be a surprise to see a bankruptcy filing this weekend, as the interest payment on TerreStar’s preferred stock, which was due on Friday, had always provided a deadline for resolution of the funding situation.

Now the question turns to who will provide this DIP. The fact that it is described as coming from “one creditor” indicates that this is almost certainly Echostar, given that Harbinger could potentially face regulatory concerns if it was to acquire control of TerreStar in addition to LightSquared. As we noted in previous posts, it appears there may have been efforts earlier in the summer to syndicate a much larger DIP to other parties and cram-up the first lien debt. However, assuming these efforts have failed, Echostar presumably will be able to protect its first lien position by providing the DIP itself.

It will be very interesting to see whether Harbinger will retain a position of influence in TerreStar or if it will end up largely sidelined in a TerreStar bankruptcy. In the latter case, it is quite plausible that in addition to Clearwire’s ongoing spectrum auction, Harbinger could find itself faced with competition for strategic partners from yet another source of spectrum – the opportunity to access the 2GHz ATC spectrum. Of course, some wireless operators might prefer the spectrum to be returned and re-auctioned without ATC constraints in an incentive auction, but even the initial rulemaking won’t be complete until sometime in 2011, and an auction could take another year or more to organize. Thus until the FCC completes its MSS rulemaking, the owners of the 2GHz ATC spectrum (at least other than Harbinger) would certainly have nothing to lose in seeking out a potential buyer.

UPDATE: Harbinger has now stated that it is “not really involved anymore” with TerreStar, essentially confirming that it will not be providing the DIP financing. This comment also tends to suggest that Harbinger might no longer be in a position to prevent the owners of the 2GHz ATC spectrum seeking a spectrum buyer in competition with LightSquared.

1 Comment »

  1. ORBITRAX said,

    October 17, 2010 at 1:40 pm

    It is our opinion that Harbinger will indeed be the provider of DIP. Echostar’s first lien debt at NETWORKS as reported is about 100 million. Which includes 100 million face in Exchange Notes PIK Notes, and 50 million in Terrestar-2 Purchase Money Credit Agreements which are secured against the Terestar-2 satellite. Echostar also has redeemable preferred shares which reside at the Terrestar corporate level versus at Networks.

    We do not see any regulatory concerns concerning an integration of Terrestar and Lightsquared as they were both under the Motient Corporation umbrella at an earlier date. If the merging of XM and Sirius were blessed by the FCC, we see no reason that a Terrestar/Lightsquared merger would be questioned.

    In the mean time. Harbinger has….. how do we say this… uhh.. “entangled” most of the assets of the estate into long-term leases (1.4Ghz spectrum), or decade long operational commitments (Terrestar Airtime Pre-purchase). The 1.4Ghz spectrum has since been sub-leased to Airspan, and we see no reason why the Terrestar Airtime Pre-Purchase Agreement would be subjugated by the Court.

    Perhaps the actual value of the underlying assets have been ultimately compromised by these transactions as the $40MM Harbinger Pre-Purchased Airtime could prevent the assets from being “broken up” to enhance potential value to the estate. In this case, the individual parts may be worth more than the whole. But, perhaps the Harbinger transactions in effect “stitches” the individual parts together. You can be confident that Harbinger will actively petition to maintain it’s rights to the $40MM in Pre-paid satellite airtime as contracted. The Harbinger contract provides up to 10 years for Harbinger to use the entire Pre-paid Airtime agreement. Thus, any potential suitor had better be prepared to fund the satellite MSS system for the full length of the Harbinger pre-paid contract. This may make the acquisition of the company far less palatable to entities other than Harbinger.

    Speaking of items of interest. Things sure seem to be getting interesting over on the BigLEO side of the equation. First, we had the September 14th Globalstar Order which requires Open Range to vacate the “S Band” (Band Clearing) licensed to Globalstar, at what could be a considerable cost to the US Treasury and JPM. Then some 15 days later, we had Iridium filing to renew it’s space station license for another 15 year term, the day before it’s deadline to renew expired.

    Buried in the attachment documents. Iridium made the following statements.

    ********************
    “Together, Iridium and Thales are in the process of finalizing the technical details of this fully-funded next generation system.
    In particular, the Iridium NEXT design will include “backward compatibility” to ensure continuity of service to existing customers. Once the technical design of Iridium’s next generation satellites has been finalized, Iridium will request modification of its space station authorization to accommodate the new design.”
    ********************
    We thought the “Technical Design” was completed quite a while ago? Now, suddenly the technical design is being modified which will require modification of its space station authorization to accommodate the “new design” Now, that doesn’t sound like a “run of the mill” emission designator change to us.

    Orbitrax has always opined that Iridium would seek authority for use of the S-Band in Iridium NEXT. Iridium has opined in various FCC filings that it will require additional spectrum in the future. Here it is obvious that Iridium could not seek additional “exclusive” spectrum in the L Band. Hence, their only option would be to modify it’s waveforms so that it could share the CDMA portions of both the L and S Bands. After all, there were originally 4 licensed CDMA MSS licensees in the original BigLEO CDMA licensing scheme. Indeed, to provide the services envisioned by Iridium NEXT. They will be most certainly be required to use a OFDM/CDMA waveform, while continuing to provide TD-TDMA in the current TDMA exclusive portion of the BigLEO L-Band. However, perhaps the Globalstar Open Range ATC operations presented a challenge in North America to this Iridium envisioned sharing of the S-Band on Iridium NEXT?

    Well, Open Range is conveniently no longer an impediment to this concept, if that is where this is ultimately headed. Open Range has been/will be Band Cleared and JP Morgan One Equity and the US Treasury picks up the tab.

    ORBITRAX

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