TerreStar Corp. Sued by Finnish Supplier for $25.8M

By Peter B. de Selding

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PARIS — Elektrobit Corp. of Finland has filed a lawsuit against the parent company of mobile satellite services startup TerreStar Networks, which is under Chapter 11 bankruptcy protection, in an attempt to recover $25.8 million, Elektrobit announced Nov. 20.

Elektrobit is under contract to Reston, Va.-based TerreStar to provide technologies for the TerreStar dual satellite-terrestrial handset. It is under no illusions that TerreStar Corp., which owns TerreStar Networks, is any more likely to repay creditors than TerreStar Networks, which in October filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York.

In a statement, Elektrobit said it expects the parent TerreStar to follow its subsidiary into Chapter 11 in the near future. In that event, Elektrobit’s lawsuit, filed in the New York State Supreme Court, would be set aside pending completion of the bankruptcy proceedings.

Elektrobit said its contract with TerreStar includes a guarantee by the parent company in the event TerreStar Networks is unable to pay its bills.

Elektrobit said it does not risk having its payment demands being given lower priority by the TerreStar bankruptcy court as a result of the lawsuit.

The company said that while it has limited information about the Chapter 11 proceedings, it has concluded that TerreStar’s plan for reorganizing its debt and emerging from bankruptcy likely will give Elektrobit and other creditors newly issued common stock, and rights to purchase preferred stock, in the post-Chapter 11 TerreStar.

TerreStar is building a network to provide wireless broadband in the United States using two large satellites — one of which is already in orbit — and a network of ground-based signal boosters called Ancillary Terrestrial Components (ATC). EchoStar Corp. of Englewood, Colo., has expressed a willingness to invest cash in TerreStar in exchange for a larger share of the company after bankruptcy.