Blackstone advises teetering TerreStar - sources

Fri Aug 13, 2010 12:25pm EDT

* Telecom hires Blackstone for restructuring talks

* TerreStar has said it may have to file for bankruptcy

* Harbinger is a big bondholder and stockholder

* TerreStar shares down 36 pct

By Matthew Goldstein

NEW YORK, Aug 13 (Reuters) - Cash-strapped telecom TerreStar Corp TSTR.O is working with a restructuring team from Blackstone Group (BX.N) in negotiations with its major creditors, including Phil Falcone's Harbinger Capital Partners, according to people familiar with the situation.

Reston, Virginia-based TerreStar hired the restructuring arm of private equity firm Blackstone to head up the talks with its bondholders several weeks ago in a bid to stave off a bankruptcy filing, the sources said.

Douglas Brandon, TerreStar's general counsel, declined to comment.

TerreStar, which is trying to build a wireless network that relies on both satellite and earth-based communications systems, said in an Aug. 6 regulatory filing that it may have to file for Chapter 11 bankruptcy protection.

Reuters reported on Thursday that the company could soon file for bankruptcy if the restructuring talks prove fruitless. In Friday trading on the Nasdaq stock market, TerreStar shares were down 14 cents, or 36 percent, to 25 cents.

In the event of a bankruptcy, some of TerreStar's bondholders, including Harbinger, are prepared to step in and provide the company with debtor-in-possession financing to enable it to continue operating during the Chapter 11 proceedings, sources familiar with the situation said.

In the restructuring talks, Harbinger, a New York-based hedge fund with more than $6 billion in assets spread across a half-dozen funds, is being advised by bankers from UBS (UBS.N).

Falcone's hedge fund is TerreStar's biggest equity holder and owns $150 million of the company's nearly $1 billion in debt, according to regulatory filings.

Harbinger owns a rival telecom company, LightSquared, which has entered into a number of lease agreements with TerreStar.

A Harbinger spokesman did not return a phone call seeking comment. UBS and Blackstone declined to comment.

In July, UBS arranged a $400 million financing package for Harbinger. The hedge fund pledged billions of dollars in assets as collateral, including its equity interest in the holding company for LightSquared.

Two years ago, Harbinger hired Park Hill Group, a Blackstone subsidiary, to help find investors for its Credit Distressed Blue Line Fund. A person familiar with Blackstone said Park Hill has not done any work for Harbinger since that time. (Reported by Matthew Goldstein; editing by John Wallace)

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