TerreStar cancels exchange offers for preferreds, consent bid for 6.5% exchangeables

By Susanna Moon

Chicago, April 5 - TerreStar Corp. and TerreStar Holdings Inc. terminated their exchange offers for three series of notes because conditions to the offers had not been satisfied, according to an 8-K filing with the Securities and Exchange Commission.

The companies were offering:

• Up to 90,000 shares of series F preferreds in exchange for TerreStar's series A cumulative convertible preferreds;

• Up to 318,500 series F preferreds in exchange for TerreStar's series B cumulative convertible preferreds; and

• Up to 300,000 series G junior preferreds in exchange for the company's series E junior participating preferreds.

TerreStar Networks Inc., an indirect majority-owned subsidiary, also terminated the proposal to amend all outstanding $167 million principal amount of 6½% senior exchangeable pay-in-kind notes due 2014.

As of the termination, investors had tendered $22,492,279 principal amount of the 6½% notes and consented to amendments, and tendered 155,000 shares of series B preferreds.

The exchange offers and solicitation expired at 5 p.m. ET on April 2.

Mandatory redemption

The series A preferreds and the series B preferreds will become mandatorily redeemable on April 15 at a price per share equal to par plus accrued dividends.

The company said it does not anticipate having funds on April 15 legally available for the redemption of the two series of preferreds.

The companies will continue to consider their options in connection with amending the redemption date or refinancing the preferreds.

If all of the series A and series B preferreds are not redeemed on April 15, holders of the preferreds may elect two members to the company's board of directors until all outstanding shares of the preferreds have been redeemed.

Preferred holders' rights will become effective only if the company's failure to redeem continues for 30 consecutive days following a notice of failure to redeem given by the holders of at least 25% of the preferreds.

Previous extensions

On March 8, TerreStar Corp. and TerreStar Holdings Inc. extended their exchange offers for three series of preferred stock as well as the consent solicitation for one series of the preferreds and $167 million of 6.5% senior exchangeable pay-in-kind notes due 2014

The expiration date was extended to 5 p.m. ET on April 2 from March 5. It was previously extended from Feb. 4, Jan. 6 and, before that, Dec. 15.

The extension was made in order to provide additional time to satisfy some closing conditions, including the receipt of the needed consents.

As of March 5, about 155,000 series B preferreds and no series A or series E preferreds had been tendered and holders of $22,492,279 principal amount of the 6.5% exchangeables had consented to the proposed amendments.

The results were unchanged from Feb. 4.

The offers began on Nov. 16 after TerreStar canceled similar offers that began Oct. 9 and had been scheduled to expire on Nov. 10.

Offer terms

Holders were to receive one new preferred for each series A or series B preferred exchanged and one-quarter of a new preferred for each series E preferred exchanged, according to a schedule TO filing with the SEC.

The series F and series G preferreds were to be issued by TerreStar Holdings.

TerreStar was to issue up to 408,500 series B preferreds and up to 600,000 series E preferreds to TerreStar Holdings prior to the completion of the exchange offers.

Holders of the series F and series G preferreds issued in the exchange offer were to be beneficial holders of the series B and series E preferreds issued to TerreStar Holdings, respectively.

The series B preferreds will mature June 30, 2014, at which time the series F preferreds will be redeemed.

Holders of series F preferreds were to be entitled to receive the 7% dividends payable on the series B preferreds and to convert their beneficially owned series B preferreds into TerreStar common stock.

Holders of the series G preferreds were to be entitled to convert each of their beneficially owned series E preferreds into 100 shares of TerreStar common stock.

Additionally, TerreStar was soliciting consents to amend the certificate of designation of the series B preferreds, and TerreStar and TerreStar Networks Inc. were soliciting consents to amend the indenture governing the 6.5% notes and approval from these noteholders of the exchange offers.

After giving effect to the 6.5% notes amendments, each $1,000 in principal amount of the 6.5% notes was to be exchangeable for a number of series G preferreds equal to 1,000 divided by the product of (a) 100 and (b) 125% of the average of TerreStar's closing stock prices over the 10 trading days ending three days immediately prior to the close of the exchange offers.

Finally, TerreStar Holdings was to issue 150,000 series G preferreds to EchoStar Corp. and another 150,000 series G preferreds to Harbinger Capital Partners and Harbinger Capital Management in exchange for their waiver of some fundamental rights as holders of series A, B, C and D preferreds and their consents under some other agreements.

Jefferies & Co., Inc. was the dealer manager, and Epiq Financial Balloting Group (646 282-1800) was the exchange and information agent.

Based in Reston, Va., TerreStar is a holding company with subsidiaries that operate satellite-based digital mobile communications systems.

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