Rumor no more: TerreStar Networks files Chapter 11

Satellite network provider works out deal with creditor to keep doors open


On Monday I wrote that mobile wireless network provider TerreStar Corp. was considering filing for bankruptcy.

It's not. But one of its subsidiaries, TerreStar Networks Inc., burdened with more than $1 billion in debt, on Tuesday filed for Chapter 11 bankruptcy protection in a New York court.

"After careful consideration of all available alternatives, we determined filing chapter 11 was a necessary and prudent step to strengthen our balance sheet and gain financial flexibility in order to access liquidity and position TerreStar Networks as a stronger, healthier company," President and CEO Jeffrey W. Epstein said in a statement.

Shares of TerreStar Corp. (NASDAQ: TSTR) have had an epic meltdown since the Wall Street Journal first reported the bankruptcy rumor, going from Friday's closing price of 40 cents to 11 cents Wednesday morning, after the company filed. TerreStar's market capitalization currently is around $16 million.

In its most recent quarterly report (June 30), TerreStar Corp. reported assets of $1.4 billion and liabilities of $1.645 billion.

Fortunately for TerreStar Networks -- which launched a satellite in June 2009 and has a smartphone deal with AT&T -- its largest secured creditor, satellite communications equipment vendor EchoStar Corp., has agreed to provide the mobile network provider with $75 million in financing to keep the operation running through bankruptcy proceedings.

EchoStar also has consented to a restructuring based on giving secured noteholders stock in exchange for debt, and to "backstop a $100 million rights offering that will provide the funding for TerreStar Networks' exit from chapter 11," the company said.

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