June 27, 2011 / 7:24 PM / 7 years ago

Bondholders will not bid on TerreStar - source

* Senior bondholders will not seek to buy company - source

* Dish Network’s $1.38 bln bid only public offer so far

* Bid deadline is 5 p.m. Monday

By Nick Brown

NEW YORK, June 27 (Reuters) - A group of TerreStar Networks Inc’s [TSTRT.UL] senior bondholders will not bid for the bankrupt telecommunications firm’s assets, according to a source with direct knowledge of the situation.

Potential buyers must make offers by 5 p.m. ET Monday to trigger an auction for the company. If no party bids, Dish Network Corp (DISH.O), which submitted a minimum or “stalking horse” offer of $1.375 billion June 15, would acquire the company.

The bondholder group, which includes TerreStar’s 15 percent senior secured noteholders, competed with Dish to serve as stalking-horse bidder, driving up the company’s price.

But the group has decided not to try to outbid the satellite giant at auction, said the source, who is involved in the sale discussions and spoke on the condition of anonymity because the bidding process is private.

Representatives for TerreStar did not respond to requests for comment. An attorney for Dish could not be immediately reached.

The bondholder group is made up of several investment funds, including Solus Alternative Asset Management, Archer Capital Management LP and Redwood Capital Group LLC, according to court papers. They could not be reached for comment.

If Dish emerges as the highest bidder, TerreStar will become the latest piece of billionaire Charles Ergen’s burgeoning satellite empire. Dish, which is controlled by Ergen, has also won a bid to acquire bankrupt DBSD North America, and recently closed a deal to buy Blockbuster Inc BLOAQ.PK.

EchoStar Corp (SATS.O), also controlled by Ergen, closed a $1.33 billion deal earlier in June to acquire Hughes Communications Inc HUGH.O.

Any superior bid for TerreStar would have to top Dish’s offer by $55.5 million, under procedures set by the bankruptcy court. A $27.5 million breakup fee would be paid to Dish if it loses to a higher bidder. The case is in re: TerreStar Networks Inc., U.S. Bankruptcy Court, Southern District of New York, No. 10-15446.

Reporting by Nick Brown, editing by Bernard Orr

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