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TerreStar, the geosyncronous satphone provider, is preparing a possible filing for bankruptcy protection, says the Wall Street Journal.

TerreStar, with more than $1 billion in debt, could file for bankruptcy protection in coming days, reports The Journal. A filing had been expected as early as Sunday.

TerreStar may convert some of its debt to equity in bankruptcy court. One creditor could provide TerreStar with about $75 million in debtor-in-possession financing that would keep the telecommunications firm afloat during bankruptcy proceedings.

TerreStar, which is based in Reston, Va., and employs about 100 people, has been burning cash trying to build a system that would provide mobile communications in hard-to-reach spots across North America.

TerreStar launched its first satellite in July 2009 and is building a second, dubbed TerreStar-2. To fund the second satellite, the telecommunications company tapped a $100 million credit line from hedge fund Harbinger Capital Partners and EchoStar Communications.

LightSquared is backed by Harbinger Capital, which now owns all of SkyTerra and some 44 percent of TerreStar; two different satphone platforms.

This week, LightSquared said it had secured $850 million of funding, sufficient to get the company through to “operational launch and beyond.” LightSquared also signed up Qualcomm to produce its cellular chipset by the end of the year or early in 2011, and equipment manufacturers AnyDATA and BandRich to create USB wireless laptop cards, which are expected to be ready when the network begins its trials next year.

TerreStar had about $42.5 million available from that credit line as of June 30, and just $15 million in cash. The company has posted annual losses of more than $200 million the past few years.

The company’s shareholders are likely to be wiped out in a bankruptcy reorganization, says the Wall Street Journal. Echostar is one of TerreStar’s biggest holders, but its largest is Harbinger, a hedge fund run by Philip Falcone. Harbinger owned nearly 48% of TerreStar’s common shares as of April, according to a recent regulatory filing.

Falcone invested in the Ka-band TerreStar satellite network, which would use a dual-mode AT&T cellphone that switches to satellite connectivity, but it doesn’t represent Harbinger’s main bet, explains the WS Journal.

Harbinger’s LightSquared hopes to launch its other satphone network in the second half of next year using the 1.6 GHz “L band”, using terrestrial repeaters to deliver LTE services. The company plans to offer network capacity to other firms.

A person close to Harbinger said the firm’s equity exposure to TerreStar amounts to just $12 million. Mr. Falcone’s resources are concentrated in LightSquared, and Harbinger is “not really involved anymore” with TerreStar, this person said.

New York-based Harbinger now owns all of SkyTerra and some 44 percent of TerreStar, as well as 29 percent of London-based Inmarsat, the veteran mobile satellite services provider.

TerreStar-1, using the 2 GHz MSS band, was launched on July 1, 2009. It was constructed by Space Systems/Loral and is the world’s largest and most powerful commercial satellite ever launched, with an antenna almost 60 feet across, and supporting 500 dynamically-configurable spot beams. (Form 8K)

A new 1.6 GHz satellite platform, SkyTerra-1 was scheduled for launch this November with SkyTerra-2 to be launched next year. SkyTerra1 and SkyTerra2 are built by Boeing, using ILS launch services. But Boeing discovered a technical glitch in SkyTerra-1 satellite, postponing the launch by ILS from Kazakhstan to December or early 2011. SkyTerra will implement LightSquared’s Cooperative Agreement with Inmarsat (which also uses the 1.5/1.6 GHz (“L Band”), that will be integrated with SkyTerra’s 1.6 GHz satellite network.

TerreStar’s $799 Windows Mobile-based Genus phone was announced for AT&T, offering a combination of GSM/HSPA and satellite access when far from a cell tower.

The phone costs $799 without a two-year contract, and requires regular AT&T voice and data service plans. It uses the AT&T network where it’s available. The option to be able to switch over to the satellite costs $25 extra per month, and then 65 cents per minute of calling.

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