EchoStar says Terrestar's auction rules uncertain
2 May 2011
EchoStar Corp. /quotes/comstock/15*!sats/quotes/nls/sats is objecting to several of TerreStar Networks Inc.'s proposed auction procedures, saying the satellite company is asking bidders to participate in a game with "uncertain rules" that could "chill bidding and could jeopardize the goal of maximizing the value of the estates."
In a Friday filing with the U.S. Bankruptcy Court in Manhattan, EchoStar said that the main reason no official bids have yet been made for TerreStar is that the company is still trying to keep as many of its options open, including a possible plan of reorganization without a sale of its assets.
"Investors demand a certain predictable, definite process; they do not take aim at moving targets," said EchoStar, TerreStar's largest creditor, in its court filing. TerreStar, which earlier this month said it would auction itself off to the highest bidder, is instead simply trying to preserve all its options, EchoStar said.
A TerreStar spokesman didn't immediately respond to a request for comment. A judge on Wednesday will decide whether to sign off on the bidding procedures for TerreStar.
Specifically, EchoStar is objecting to a provision in TerreStar's auction proposal that allows the company to enter into an agreement with a stalking-horse bidder at any time prior to five days before an auction, with competing bidders only getting notice of five days--not business days--to try to conform to that bid. Such an auction, EchoStar said, would provide "onerous protections" for the stalking-horse bidder, which typically sets a floor price for an auction.
EchoStar said that, instead, any agreement with a stalking-horse bidder should be approved by the court, a process that would "give other parties in interest the opportunity to offer better terms, ultimately garnering the highest price for the debtors' assets and the greatest recoveries for creditors."
EchoStar, which is controlled by satellite mogul Charles Ergen, said that it supports a sale, but thinks changes to the auction procedures would result in more competitive bidding.
Reston, Va.-based TerreStar, which is trying to build the first satellite smartphone, filed for Chapter 11 protection in Manhattan in October with a plan calling for secured noteholders such as EchoStar to swap more than $850 million in debt for nearly all the equity in a reorganized TerreStar. More junior creditors, however, would have received just pennies on the dollar, and existing equity holders would have gotten nothing.
After failing to reach a compromise with creditors on that plan, TerreStar scrapped it and explored either an alternative proposal or a sale of its assets. When those efforts failed, the company said it would purse an auction.
TerreStar's publicly traded parent, TerreStar Corp. /quotes/comstock/11i!tstrq TSTRQ +3.41% , itself filed for Chapter 11 bankruptcy protection in Manhattan earlier this year after lining up debtor-in-possession financing from creditor Solus Alternative Asset Management.
Both Ergen of EchoStar and billionaire money manager Phil Falcone of Harbinger Capital Partners bet big on the company's plan. EchoStar and Harbinger are among the largest holders of TerreStar's publicly traded parent.
Ergen is also seeking to use his other publicly traded company, Dish Network Corp. /quotes/comstock/15*!dish/quotes/nls/dish DISH -0.20% , to buy DBSD North America Inc. out of bankruptcy for $1 billion. Dish last week closed a $320.6 million deal for another company, Blockbuster Inc., in New York Bankruptcy Court.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
