11.19.10
Posted in Financials, Operators, TerreStar at 3:40 pm by timfarrar
This afternoon, Harbinger filed another Form 4, which detailed its continued sales of TerreStar Corporation’s common stock, where it has sold a total of 37.4M common shares since October 22, and the purchases of 6.5% Exchangeable Notes in its Blue Line Fund, where it has now acquired $31.55M (in face value) of these Notes. As of June 30, Harbinger’s Master Fund held 31.6M shares of TerreStar Corporation and its Special Situations Fund held 11.6M shares of TerreStar Corporation. As a result, it appears that Harbinger has now disposed of nearly all of its common equity interests in TerreStar Corporation, and currently owns just 3.7M shares of common stock.
The Form 4 also indicates that Harbinger still has a beneficial ownership of 37.05M shares in the Master Fund and 10.33M shares in the Special Situations Fund, which includes the conversion rights associated with Harbinger’s exchangeable note and preferred stock holdings, plus its Series E holdings (equivalent to 30M shares of common stock). Based on Harbinger’s prior ownership of one third of the $178.7M in Exchangeable Notes, this would equate to beneficial ownership of 10.7M common shares, while its Series B preferred stock holdings presumably account for the balance of 3M shares (which would equate to holding $100M in face value of Series B preferred stock at the designated exchange ratio of $33.33 per share).
With its recent Blue Line purchases, Harbinger now appears to have acquired control of a majority of the TerreStar Networks 6.5% Exchangeable Notes, although it has had to pay a significant premium to do so (paying 82 cents on the dollar for its most recent purchases, compared to 43 cents when it started buying). Harbinger has also disposed of most of its holding in the TerreStar Purchase Money Credit Facility, with MAST Capital Management now holding 47% of the $85.9M in outstanding loans and presumably Harbinger therefore only holding 3% of the loan. Thus Harbinger’s position is now effectively concentrated in the Exchangeable Notes at TerreStar Networks and the Series B and Series E Preferred Stock at TerreStar Corporation, so it will interesting to see how this impacts its future actions in the TerreStar bankruptcy.
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11.08.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 4:18 pm by timfarrar
Last Thursday, Clearwire announced that it was laying off 15% of its staff (as I suggested a couple of weeks ago), in an attempt to conserve its cash resources, which are only expected to last “through the middle of 2011″. When news first emerged of the Clearwire spectrum auction back in mid-October, I suggested that it was going badly and appeared to have been leaked by Clearwire itself, and it certainly doesn’t appear that the auction has concluded with a positive outcome (i.e. with T-Mobile agreeing to pay a significant amount for the 40MHz of spectrum that Clearwire was trying to sell).
The question now arises of what this means for LightSquared, which has also been pursuing a deal with T-Mobile as a potential wholesale customer and/or strategic partner for its 4G LTE network. Although T-Mobile appears not to have struck a deal with Clearwire, and thus is at least potentially still a partner for LightSquared, it is far from clear whether this is good news. If T-Mobile’s interest in Clearwire was thwarted because of roadblocks thrown up by Sprint (i.e. Sprint’s unwillingness to share a network with a key competitor), then it is quite possible that a deal with LightSquared could still be on the cards. However, if instead T-Mobile has decided that the price of spectrum is only going to go down over the next 6-12 months (and perhaps even in the medium term), as Clearwire and LightSquared become increasingly desperate for a deal, then that would certainly be bad news. T-Mobile might even be waiting to see if the 2GHz MSS spectrum could present another possible alternative, once the TerreStar and DBSD bankruptcies are resolved, given that this spectrum is closer to its existing PCS and AWS holdings than either the LightSquared L-band spectrum or the Clearwire 2.5GHz spectrum, and could even be available without ATC restrictions (via an incentive auction) in a couple of years’ time.
Whatever the reason, if T-Mobile does delay its decision on 4G spectrum (which might well be suggested by the recent rebranding of its HSPA+ network as 4G), then that would tend to indicate that it is not feeling too much pressure from the supposed “spectrum crunch”. While that may be at least partly because it won’t be offering the iPhone anytime soon, it will be interesting to see whether it also prompts more people to question the received wisdom about future spectrum demand.
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11.01.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 5:59 pm by timfarrar
Wall Street analysts always seem to have a difficult time understanding the MSS industry. Who can forget the forecasts from the late 1990s that the MSS industry would generate tens of billions of dollars in annual revenues within a few years?
Now we see equally wild guesses about the TerreStar bankruptcy and what might happen to those assets. Jonathan Chaplin of Credit Suisse suggested that there could be a grand bargain between LightSquared, TerreStar and DBSD to pool their spectrum for wireless broadband. Unfortunately this prospect appears to have been comprehensively shot down by Harbinger’s apparent attempt to disrupt the TerreStar Restructuring Support Agreement by buying TerreStar’s Exchangeable Notes.
Next up was Jason Bazinet from Citigroup, with speculation that Echostar was intending to build a satellite-based mobile video network using TerreStar and/or DBSD’s assets. However, this bizarre analysis completely misunderstands the limitations of satellite services: you can build a satellite-based broadcast network using a limited number of repeaters (just like Sirius XM has done), but then its only useful in cars, not for serving the tablet market that Bazinet assumes would be the target market for the service (unless you like standing around outside in a field to watch the video programming). And of course the in-car market for subscription-based video is a small fraction of the market for satellite radio (while Qualcomm’s MediaFLO business has been little short of a disaster), because solo commuters can’t exactly spend their time watching TV whilst driving down the freeway.
So we’re left with the question – can anyone come up with a better analysis of what’s going to happen to these assets, or will we just have to wait for more to be revealed at the end of this week?
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10.29.10
Posted in Financials, ICO/DBSD, LightSquared, Operators, Spectrum, TerreStar at 1:16 pm by timfarrar
In the UK, November 5th is celebrated as Guy Fawkes night, with bonfires and fireworks to commemorate a foiled attempt to blow up the Houses of Parliament back in 1605: “Remember, remember the fifth of November. Gunpowder, Treason and Plot.” (Yes I know that burning an effigy of someone executed 400 years ago sounds pretty bizarre to Americans)
Now it looks like next Friday could also mark a significant date for the future of the MSS industry, as that is the deadline for TerreStar Networks to submit its Disclosure Statement and Plan of Reorganization for emergence from bankruptcy. That Plan could reveal details of how TerreStar Networks intends to move forward with both its MSS services and attempts to monetize its ATC spectrum. We also may find out more about what is likely to happen with the TerreStar-2 satellite, which could end up being used to support a European S-band project. This comes at a time when we are waiting to see what happens to DBSD, after its attempted emergence from bankruptcy was stayed by the Second Circuit in early October. Even more importantly, there appears to be an ongoing battle between Harbinger/LightSquared and Clearwire to secure a partnership with T-Mobile, as the current Clearwire auction moves towards a conclusion (most likely before Thanksgiving). Securing a partnership with T-Mobile could be a make-or-break situation for Harbinger and LightSquared, as T-Mobile is the only major US wireless carrier still to decide how it will move forward with 4G. There has even been speculation from Credit Suisse about a grand bargain that would bring together all three of these ATC spectrum holders. However, with Harbinger now buying the unsecured Exchangeable Notes at TerreStar Networks at 43.5 cents on the dollar, which were only supposed to receive up to 3% of the restructured equity (i.e. less than 20 cents on the dollar), a challenge to the TerreStar Restructuring Agreement might appear to be a more likely outcome.
As a result, the next week is likely to be filled with plotting, but let’s just hope that by next Friday any gunpowder will be signaling celebration rather than destruction in the MSS industry. Today we’re releasing our new profile of LightSquared, which contains a detailed analysis of their LTE business plan and a discussion of spectrum valuation and regulatory issues, all of which will be very relevant to those seeking to understand the implications of these events. Our MSS operator profiles are sold individually and are priced at $995, including a free one hour discussion of our analysis. On Monday we’ll also be releasing a new report with details of MSS industry developments, including Inmarsat’s Ka-band system, regulatory and financial ATC-related developments and updates on market growth, which is available exclusively to subscribers to our MSS information service. Contact us if you need any more information about our research.
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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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10.07.10
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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