10.21.10
Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 12:56 pm by timfarrar
One of the most important documents filed so far in the TerreStar bankruptcy case is the Restructuring Support Agreement, which TerreStar (and Echostar as the majority holder of the first lien debt) have committed to support as a basis for the plan for emergence from Chapter 11. This agreement will convert the Senior Secured PIK Notes ($944M of principal and accrued interest) into 97% of the new equity of TerreStar Networks (TSN), with the remaining 3% shared between the Exchangeable Notes ($179M of principal and accrued interest) and other unsecured claims. No distribution will be made to the original holders of interests in TSN (the 89% held by TerreStar Corporation and the 11% held by LightSquared). In addition there will be an offering of $125M of Preferred Stock to repay the DIP, with rights to subscribe to 97% of this Stock offered to the Secured Notes holders and the remaining 3% offered to the holders of Exchangeable Notes/unsecured claims. Echostar has agreed to backstop $100M of this $125M offering. The “net distributable value” under the Plan is set at $1.050 billion, and the Preferred Stock will be issued at a discount of 35%. Under the Plan the only outstanding debt after emergence from bankruptcy would be the Purchase Money Credit Facility (PMCF), which currently has $86M outstanding.
The RSA also includes a declaration from Steven Zelin of Blackstone, which sets out details of the negotiation process leading up to the bankruptcy filing. Many of the developments are broadly in line with what we had surmised, notably that TerreStar had tried to float a much larger DIP of $250M, initially using the 1.4GHz spectrum and the ground spare satellite as security (after repaying the PMCF), and later by priming the first lien debt. However, neither option proved feasible, the first apparently because the 1.4GHz spectrum plus the ground spare satellite did not provide sufficient security, and the second because it was anticipated that a priming fight would be difficult to win. As a result, TerreStar was forced to accept Echostar’s proposal for a $75M DIP and plan of emergence set out in the RSA.
The unanswered question is to what degree Harbinger is content with the outcome – it certainly appears to have been on the opposite side from Echostar in the early part of the negotiation process (apparently agreeing to participate in the first proposed DIP) but then it agreed with Echostar to provide a $10M advance under the PMCF, which explains how TerreStar managed to stay out of bankruptcy until now. However it seems a huge stretch to imagine that this means there is some agreement between Harbinger and Echostar to join forces and collaborate in LightSquared, as Credit Suisse have suggested. In particular, there are plenty of other reasons for both companies to have wanted to delay the bankruptcy filing: in Echostar’s case because they needed to negotiate over their own proposal, and in Harbinger’s case because they were trying to finalize additional funding for LightSquared.
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10.19.10
Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 2:41 pm by timfarrar
This afternoon, TerreStar Networks and various affiliates filed for bankruptcy, and entered into an agreement with EchoStar Corporation, its largest secured creditor, to provide the Company with a $75 million debtor-in-possession financing facility (as we surmised on Saturday). In addition, Echostar will support a restructuring premised on a debt for equity conversion by the Debtors’ secured noteholders, and backstop a $100 million rights offering that will provide the funding for TerreStar Networks’ exit from Chapter 11.
As shown in the diagram below from the TerreStar Networks Chapter 11 petition, the publicly quoted parent, TerreStar Corporation, did not file for bankruptcy, and presumably could continue to operate using the $2M per month that Harbinger is paying for its lease of the 1.4GHz spectrum. However, in the short term, this $2M per month will not be cash revenue, because the $30M advance received back in January covers payments for 15 months of the lease (i.e. until next May) and has already been spent. Thus it is unclear how TerreStar Corporation will find its near term operating funds.
UPDATE: TerreStar Corporation has now filed an 8-K confirming the tolling agreement to suspend its litigation with Highland Capital and that Highland, Solus and Harbinger have agreed to loan the company $1.25M for a period of 75 days. It appears that this may provide a window of opportunity to either negotiate a sale of the 1.4GHz spectrum or decide if TerreStar Corporation should file for bankruptcy. TerreStar Corporation has also agreed that its shares will be delisted from NASDAQ.
TerreStar Corporation will retain control of its 1.4GHz spectrum assets, but will see its shareholding in TerreStar Networks wiped out in the bankruptcy (note that both the TerreStar-1 and TerreStar-2 satellites and their 2GHz MSS-ATC spectrum allocation are included in the bankruptcy proceeding). As a result, the residual value of TerreStar Corporation will basically be equal to the value of the 1.4GHz spectrum assets. However, it is hardly plausible that this spectrum could be worth more than the $408M (+ accrued interest) outstanding in TerreStar Corporation’s preferred stock.
Though a TerreStar bankruptcy has been rumored for several months, it has been a long time in coming. This appears to have been caused by several changes in plan, as it appears the original intention was to try and avoid losing control of TerreStar Networks and its spectrum, and raise money against the assets at TerreStar Corporation, a task which apparently proved fruitless. There is no mention of any role for Harbinger in the press release announcing the Chapter 11 filing, so it will be interesting to see what happens next with the 2GHz MSS spectrum. However, it certainly appears possible that there could be yet another source of spectrum on the market competing for buyers with Clearwire and LightSquared.
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10.16.10
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.
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10.13.10
Posted in Financials, LightSquared, Operators, Spectrum at 8:40 pm by timfarrar
So news has finally broken that Clearwire is selling 40MHz of its spectrum, as we surmised back in May. However, the valuation range cited is relatively wide ($2.5B to $5B) representing $0.20 to $0.40 per MHzPOP, and Verizon (which was said to be one “potential buyer” of the spectrum along with AT&T, T-Mobile, Time Warner Cable and Sprint Nextel) has now denied it is bidding. It also hardly seems plausible that AT&T would be bidding for spectrum it was forced by the FCC to relinquish just a few years ago. As a result, the release of this information seems like it could well be an attempt to encourage bidding if the auction is not going too briskly, with “potential buyers” rather than actual bidders being listed to create an appearance of higher demand.
If the end result is towards the lower end of the quoted range, then that would clearly be a negative sign for spectrum valuations – falling far short of the $0.50 per MHzPOP valuation suggested by Clearwire and some analysts back in May and coming close to the $0.17 per MHzPOP paid by Clearwire when it acquired spectrum from AT&T/BellSouth in February 2007. If that’s the case, then it would imply that the value of this spectrum has hardly changed in the last three years, despite the supposed “spectrum crisis” that has been widely discussed.
Of course, the headline price for Clearwire’s spectrum is not the only factor that needs to be taken into account when considering this as a valuation benchmark for other spectrum bands. In particular, around 60% of Clearwire’s spectrum (in the EBS part of the band) was acquired under lease agreements, and though some of these are partly prepaid, others will require substantial future payments (totaling $5B over the next 30 years). Thus if Clearwire sells mostly owned spectrum for close to $0.20 per MHzPOP, then the implied spectrum valuation for other bands would be rather lower than if it sold a mix of leased and owned spectrum.
Nevertheless, a low valuation benchmark might well make fundraising more challenging for ATC spectrum holders. LightSquared noted in its presentation at Satcon today that it acquired its spectrum for the “low cost” of $0.20 per MHzPOP, and while one can argue that the propagation characteristics of LightSquared’s lower frequency L-band spectrum make it more valuable than Clearwire’s 2.5GHz spectrum band, mobile operators who are seeking spectrum simply for fill-in 4G coverage in densely populated markets may not necessarily see it that way. LightSquared also has ATC-specific risks to consider, related to the aggressive buildout commitments it made to the FCC back in March and the need for rebanding in the L-band (with the associated substantial payments to Inmarsat). As a result it remains to be seen whether the investments that Harbinger has made to acquire LightSquared’s spectrum will still be seen as a low cost at the end of the Clearwire auction.
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10.09.10
Posted in Financials, LightSquared, Operators, Regulatory at 12:52 pm by timfarrar
“We see them come.
We see them go.
Some are fast.
And some are slow.
Some are high.
And some are low.
Not one of them is like another.
Don’t ask us why.
Go ask your mother.”
Though Dr Seuss did a pretty good job of summarizing the MSS industry, he may not have had the answer to this puzzle. In an interview this week, one of LightSquared’s senior executives referred repeatedly to the “one satellite” LightSquared intends to launch “in the next couple of months”. This is strange because LightSquared was granted a waiver by the FCC back in 2007, enabling it to use two in-orbit satellites for mutual backup rather than relying on a ground spare satellite as would otherwise be required by the ATC gating criteria. The second satellite was apparently needed to satisfy “United States and Canadian interests in the launch of next-generation L band MSS satellites”, and to provide 3dB of extra link margin by use of diversity.
If LightSquared decides not to launch the second satellite, then it would still meet the ground spare requirement in the ATC gating criteria, while saving tens of millions of dollars in insurance and launch costs. However, if it proves successful in its recent request to the FCC to eliminate the ground spare requirement, then presumably not only would LightSquared save on the cost of launching and insuring the second satellite, but could also raise some additional money if it could find a buyer for that satellite.
Given the rapid pace of developments, it looks like a lot of these issues will be clarified over the next few months, most notably who LightSquared’s partners will be, and it will be interesting to see what Phil Falcone pulls out of his hat next. With apologies to Dr Seuss, let’s hope for his sake its not Voom (especially given that when Cablevision finally gave up on the satellite business, it sold the assets to Echostar).
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10.08.10
Posted in Financials, Globalstar, LightSquared, Operators, Regulatory, Spectrum at 11:30 am by timfarrar
Although we remain intrigued by the timing of yesterday’s announcement of LightSquared’s chipset and device partners, what is now clear is that next year should finally result in the actual commercial deployment of an ATC network, offering both satellite and terrestrial mobile services for the first time. (Although Open Range had deployed a couple of thousand terminals under its agreement with Globalstar prior to the FCC suspending Globalstar’s ATC license, these did not include two-way functionality, and to date no handheld terminals had been produced).
LightSquared now claims to have raised over $2B, which the company expects will see it through to “operational launch and beyond” in the second half of next year. Although it is not clear where the $2B is coming from, and whether (as yet unannounced) vendor financing will form part of that $2B or could be incremental to it, it is certainly the case that with Harbinger apparently injecting funds from a $400M UBS loan in July, converting its reported $430M of debt into equity (as part of this week’s $850M debt refinancing) and presumably investing the proceeds from the sale of half of its Inmarsat stake (for $650M) in LightSquared, the company should have enough money both to pay Inmarsat for the ongoing rebanding of the L-band, and to fund the buildout of its first markets in 2011, an outcome that looked like a distant dream less than a year ago.
Given that there are no significant remaining technical barriers to overcome in deploying their satellite network, and LightSquared has commitments to produce both chipsets and ATC devices from leading manufacturers, it will be interesting to see next year both how the LightSquared network is positioned and what the public reaction is to the service. In particular, will LightSquared’s retail partners attempt to use satellite as a key differentiator, or will they rely just on the LTE offering to compete with Verizon, Clearwire, MetroPCS and others?
In the nearer term, we will also look forward to finding out exactly who these retail partners will be, and whether any of them will make a financial investment in LightSquared itself. In that regard, it appears that T-Mobile is certainly keeping its options open with regard to LightSquared, having filed at the FCC in support of relaxing the ATC gating criteria, which currently require all devices to offer integrated satellite and terrestrial services. Leap Wireless also appears to be looking closely at the ATC opportunity, having initially proposed this relaxation of the gating criteria. Whether T-Mobile’s actions are part of its negotiating strategy with Clearwire, or whether T-Mobile and Leap really are taking a potential investment in LightSquared seriously, remains to be seen.
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10.07.10
Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 9:17 am by timfarrar
Although Harbinger/LightSquared hasn’t yet got a terrestrial network to rival those of other cellular operators, it certainly has proved more than a match for them in its PR department, garnering significant positive coverage in recent months for its buildout plans, fundraising and potential partners, despite the doubts of many commentators.
However, its also the case that LightSquared has deployed its PR efforts very strategically, most notably when it announced the deal with Nokia Siemens Networks in July, straight after a skeptical article appeared in the WSJ. This week we also saw the announcement of further funding for LightSquared immediately preceding the decision to sell half of Harbinger’s stake in Inmarsat.
As a result, we’re left wondering if today’s announcement of a chipset partnership and initial device manufacturers, which also “paints a very positive picture for where LightSquared is going”, signals that there will be some bad news coming out soon. What might that be? Well as we’ve pointed out before, decision day is rapidly approaching for TerreStar, which could well involve a bankruptcy filing or other restructuring, and would certainly be another worrying sign for the MSS-ATC sector.
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10.03.10
Posted in Handheld, Operators, Services, TerreStar at 7:41 pm by timfarrar
Its been known for at least a year that TerreStar’s Genus phone would need an external antenna to provide good performance in Alaska and most of Canada. TerreStar’s latest coverage map indicates this, and also recommends the use of the external antenna in Hawaii and Puerto Rico/US Virgin Islands as well.
We’ve now obtained a picture of the cradle and external antenna, which we understand will be announced soon, presumably once approval is received for this equipment from the FCC.
UPDATE: SatPhoneStore are now selling what is referred to as the Genus External Antenna and Sled for $265. Interestingly, the Genus phone itself is priced at $1150 (down from a “regular price” of $1299), suggesting that the wholesale price of the phone to distributors other than AT&T may be approaching $1000.
It looks like the Genus phone will be a rather harder sell if users need to buy a separate and relatively bulky external antenna to improve performance, so let’s hope that what happens in Alaska stays in Alaska.
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09.29.10
Posted in Financials, Handheld, Iridium, Operators, Services, TerreStar at 10:42 pm by timfarrar
When I read this review of the TerreStar Genus phone, not only did it confirm my own views about the limited prospects for the phone and the wider lack of interest in dual mode satellite phones, but it brought back quite a few memories from the late 1990s.
Most notably, likening a satellite phone to a “brick” is never a good sign (“It’s huge! It will scare people…If we had a campaign that featured our product, we’d lose“).
Also the suggestion that AT&T hasn’t identified the market correctly if it thinks people will use this as their “everyday mobile device”, along with criticism of the “hefty series of price tags” (“What it looks like now is a multibillion-dollar science project. There are fundamental problems: The handset is big, the service is expensive, and the customers haven’t really been identified“)
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Posted in ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 4:35 pm by timfarrar
The FCC has just released its ruling on cost sharing rules for the 2GHz BAS relocation, which requires that the 2GHz MSS players will have to pay their pro-rata share of the costs incurred by Sprint Nextel in clearing the band. Back in 2009, Sprint Nextel estimated these expenses would be about $100M for each MSS operator.
The FCC ruled that MSS operators would have 30 days to pay these costs after Sprint Nextel presented them with a bill (which could happen very soon after the ruling becomes effective, sometime in November). If the costs were not paid, then the Commission could take enforcement action, although it would not automatically suspend an MSS operator’s license as Sprint requested. In addition, joint and several liability for the costs would continue in the event that a license was transferred to another party (although the Commission did not address how this liability would be impacted by a bankruptcy filing). With respect to ICO Global’s potential joint liability with DBSD for its relocation costs, the Commission outlined certain principles which would apply to this question, but indicated that Sprint Nextel would have to pursue litigation against ICO Global to resolve this claim.
Though this ruling presents certain issues for DBSD, related to its emergence from bankruptcy, it also has a definite impact for TerreStar, as it is now likely that Sprint Nextel will seek to claim $100M+ from TerreStar by the end of the year. Of course, TerreStar Networks might wish to file for bankruptcy to try and avoid this liability just like DBSD (perhaps after the claim is presented rather than before?) and it remains unclear whether TerreStar Corporation would also be subject to joint and several liability. However, if TerreStar is to monetize its 2GHz spectrum in the future (e.g. through an incentive auction) for which it will very likely need the FCC’s cooperation, it seems rather unlikely that the FCC would also allow it to escape this reimbursement obligation, reinforcing that the FCC has numerous levers to ensure that the 2GHz spectrum question is resolved in the way it wants.
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