NEW YORK -(Dow Jones)- TerreStar Networks Inc. has scrapped a plan that would put it in the hands of EchoStar Corp. (SATS) as it continues to seek either a compromise on an amended agreement with EchoStar or an alternative sale of its assets.
At a hearing in U.S. Bankruptcy Court in Manhattan on Wednesday, TerreStar lawyer Arik Preis, of Akin Gump Strauss Hauer & Feld, said the company hasn't yet come up with a compromise between EchoStar and a group of noteholders fighting the deal. The sides agreed to allow TerreStar to keep control of its bankruptcy case through March 9. Judge Sean H. Lane approved the agreement.
Preis said TerreStar will continue to seek a sale of the company and also pursue an altered EchoStar deal that satisfies creditors' concerns.
Earlier Wednesday morning, TerreStar's publicly traded parent, TerreStar Corp. (TSTRQ), filed for Chapter 11 bankruptcy protection in Manhattan. Preis said at Wednesday's hearing the parent company has secured debtor-in-possession financing from creditor Solus Alternative Asset Management.
Satellite-television mogul Charles Ergen is seeking to use his EchoStar to bring TerreStar Networks out of bankruptcy. He also is seeking to use his other publicly traded company, Dish Network Corp. (DISH), to buy DBSD North America Inc. out of bankruptcy for $1 billion.
Among others said to be wrestling for control of TerreStar's valuable spectrum assets are a number of hedge funds including Phil Falcone's Harbinger Capital Management and, according to a recent Credit Suisse report, AT&T Inc. (T). AT&T and Harbinger didn't immediately respond to requests for comment.
In October, Reston, Va.-based TerreStar Networks, which is trying to build the first satellite smartphone, filed for Chapter 11 protection in Manhattan 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.
TerreStar Networks' debtor-in-possession financing from EchoStar will remain in place, Preis said, despite the scrapping of the EchoStar-backed plan.
The company, however, won't be required to meet certain "milestones" laid out in that financing agreement.
"I'll be interested to see where the case heads from here," Judge Lane said at Wednesday's hearing.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com
--Patrick Fitzgerald contributed to this article."
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