October 18, 2010, 1:30 PM — Shares of TerreStar Corp. plunged more than 50 percent in Monday's trading following a Wall Street Journal article reporting that the debt-laden mobile wireless network provider "is preparing a possible filing for bankruptcy protection."
TerreStar (NASDAQ: TSTR) was trading early Monday afternoon at 18 cents, 55 percent below Friday's closing price of 40 cents. Its market capitalization has shrunk to $25.1 million from $55.4 million.
Last month AT&T unveiled a smartphone, called the TerreStar Genus, designed to run off the the company's satellite. The $799 device was expected to hit retail stores by the end of the year, but I don't see how a bankruptcy filing (should one occur) wouldn't change those plans. AT&T is pitching the Genus to professional customers via traditional business channels. How many of those potential customers are going to sign a contract for a phone running off the wireless network of a company in bankruptcy?
TerreStar has borrowed heavily to finance the build-out of its satellite-based network. According to the WSJ, TerreStar has more than $1 billion in debt. In addition, TerreStar has generated almost no revenue. That's a tough combination.
The company has made no secret of its financial peril. In its latest quarterly report in August -- in which it reported a loss of 45 cents per share -- TerreStar said, "Based on our current plans, there is substantial doubt that the available cash balance, investments and available borrowing capacity as of June 30, 2010 will be sufficient to satisfy the projected funding needs for third quarter of 2010."
That's a long way of saying "We probably going to run out of money."
TerreStar also said, "If we fail to obtain necessary financing on a timely basis, we may be forced to curtail operations or take other actions that will impact our ability to conduct our operations as planned."
Which gets us to the rumored bankruptcy.