In re: ) Chapter 11 ) TERRESTAR CORPORATION, et al., 1 ) Case No (SHL) ) Debtors. ) Jointly Administered )

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1 Hearing Date: March 9, 2011 Response Deadline: extended to March 7, 2011 at 4 p.m. QUINN EMANUEL URQUHART & SULLIVAN, LLP Susheel Kirpalani (SK-8926) Scott C. Shelley (SS-1013) Daniel S. Holzman (DH-5770) 51 Madison Avenue, 22 nd Floor New York, New York Counsel to Solus Alternative Asset Management LP UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: ) Chapter 11 ) TERRESTAR CORPORATION, et al., 1 ) Case No (SHL) ) Debtors. ) Jointly Administered ) RESPONSE OF SOLUS ALTERNATIVE ASSET MANAGEMENT LP TO LIMITED OBJECTION OF COLBECK CAPITAL MANAGEMENT, LLC TO FEBRUARY DEBTORS MOTION FOR ORDER (A) AUTHORIZING THE FEBRUARY DEBTORS TO OBTAIN POSTPETITION FINANCING AND (B) AUTHORIZING THE FEBRUARY DEBTORS TO USE CASH COLLATERAL Solus Alternative Asset Management LP ( Solus ), in its capacity as a lender to TerreStar Corporation ( TSC ) under the credit agreement dated as of November 19, 2010 (the Prepetition Credit Agreement ), and as proposed postpetition lender to the February Debtors, hereby submits this response (this Response ) to the Limited Objection of Colbeck Capital Management, LLC to February Debtors Motion for Order (A) Authorizing the February Debtors 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal taxpayeridentification number, are: (a) TerreStar Corporation [6127] ( TSC ) and TerreStar Holdings Inc. [0778] (collectively, the February Debtors ); and (b) TerreStar New York Inc. [6394]; Motient Communications Inc. [3833]; Motient Holdings Inc. [6634]; Motient License Inc. [2431]; Motient Services Inc. [5106]; Motient Ventures Holding Inc. [6191]; and MVH Holdings Inc. [9756] (collectively, the Other TSC Debtors and, collectively with the February Debtors, the TSC Debtors ) /

2 to Obtain Postpetition Financing and (B) Authorizing the February Debtors to Use Cash Collateral (the Limited Objection ), and respectfully states as follows: RESPONSE 1. The February Debtors commenced these cases by filing chapter 11 petitions on February 16, 2011 (the Petition Date ). On the Petition Date, the February Debtors also filed a motion seeking approval of postpetition financing, to be provided by Solus. On March 3, 2011, Colbeck Capital Management, LLC ( Colbeck ) filed the Limited Objection. 2. The Limited Objection portrays a portion of the facts related to the incurrence by the February Debtors of alleged obligations to Colbeck, 2 but omits several key facts that cast doubt on the viability of Colbeck s alleged secured claims. Specifically, the Limited Objection fails to mention that through its negotiations with TSC, Colbeck induced TSC to breach various covenants in TSC s Prepetition Credit Agreement of which Colbeck undeniably was aware including prohibitions against granting liens and incurring indebtedness. The Limited Objection fails to mention that by inducing TSC to breach its prepetition credit agreement, Colbeck appears to have tortiously interfered with the contract between TSC and the prepetition lenders, and caused significant losses to the debtors estates. 3. Rather than addressing the facts in their entirety, the Limited Objection instead attempts to portray Colbeck s actions as wholly innocuous. To that end, the Limited Objection asserts that at the time Colbeck and the February Debtors engaged in discussions regarding a potential postpetition financing arrangement, TerreStar was virtually out of cash. 2 Solus has not yet undertaken a comprehensive, independent investigation of the facts surrounding these events, and reserves all rights in connection therewith. The facts set forth in this Response are based on the facts set forth in the Limited Objection. Nothing herein shall prejudice the right of Solus or any of the prepetition lenders to argue, following further investigation, that the facts underlying this unfortunate incident are different than described herein /

3 Limited Objection, 1. With Colbeck unwilling to proceed with financing negotiations absent some assurance it would receive compensation, it appears that Colbeck demanded, and TSC agreed to pay to Colbeck, a non-refundable work fee of $125,000, evidenced by a secured promissory note that does not bear interest. On February 1, 2011, it appears that Colbeck issued a commitment letter for postpetition financing, which TSC signed, pursuant to which TSC allegedly became obligated to pay Colbeck an additional expense deposit of $300,000 and a nonrefundable commitment fee of $450,000. These obligations are also, according to Colbeck, evidenced by a secured promissory note. Limited Objection, 3. Like the promissory note for the work fee, this promissory note did not provide that any interest would accrue on the alleged underlying obligations. As noted, the incurrence of this indebtedness and these liens was in direct violation of, and constituted an undisputed breach of, the Prepetition Credit Agreement. 4. Under these circumstances, it is remarkable that Colbeck would elect to file the Limited Objection. The February Debtors obtained little or no value from their dealings with Colbeck, and certainly did not receive reasonable equivalent value or fair consideration. Indeed, when the February Debtors entered into the commitment letter with Colbeck, they already were deep into discussions with Solus and other bridge lenders about an alternative DIP financing proposal offering substantially better terms, including an interest rate that was two percentage points lower thus making it a near certainty that Colbeck s offer would not receive court approval. In a typical case, the February Debtors transactions with Colbeck would fit the paradigm of constructive fraudulent transfers. In the present cases, due to the fact that the February Debtors appear to be solvent, it may be difficult to invoke the avoidance powers of Bankruptcy Code section 544 or 548. Nonetheless, the Prepetition Lenders have strong claims against Colbeck for inducing the February Debtors to breach the prepetition credit agreement, /

4 and thereby tortiously interfering with the Prepetition Debtors contract. Colbeck s claims also may be subject to equitable subordination. 5. Colbeck s opposition to the DIP Motion is misplaced. The assertion that priming liens may not be granted under Bankruptcy Code section 364(d), because non-priming financing allegedly was available, is unavailing. The alternative financing proposed by Colbeck, while not offered on a priming basis, carried a significantly higher interest rate, did not permit multiple draws (which would significantly increase the borrowers interest costs by requiring an initial draw of the entire commitment) and contained an onerous make whole premium, which likely would have been triggered in these cases, further increasing the cost of the financing. It would be absurd for Bankruptcy Code section 364(d) to be interpreted to preclude priming financing on a favorable basis just because unfavorable, non-priming financing might be available. 6. The plain language of Bankruptcy Code section 364(d) also supports the conclusion that granting of priming liens to Solus is appropriate here. This section provides in relevant part as follows: (d)(1) The Court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if (A) the trustee is unable to obtain such credit otherwise. 11 U.S.C. 364(d)(1) (emphasis added). In the present case, Solus has required that a priming lien be granted as a condition to providing the Solus financing. While the February Debtors might have been able to obtain unfavorable financing without granting a priming lien, they are not able to obtain the Solus financing without granting a priming lien. Accordingly, the financing proposed by Solus comports with Bankruptcy Code section 364(d), and the Limited Objection must be overruled /

5 7. Colbeck s assertion that it is entitled to additional adequate protection is also mistaken. Unlike prepetition lenders obligations, which bear interest pursuant to the terms of the prepetition credit agreement, the promissory notes Colbeck extracted from the February Debtors do not bear interest. These obligations thus will not increase over time, and they are currently protected by a vast equity cushion that provides Colbeck with bountiful adequate protection. Colbeck is entitled to no more. 8. The fact that prepetition lenders bargained for adequate protection in consideration for the priming of their liens does not entitle Colbeck to piggyback on those negotiations, particularly considering Colbeck's dubious prepetition activities. The claims of the prepetition lenders, based on funded debt, are very different from those of Colbeck, which are based on a financing commitment that was never fulfilled. Nonetheless, as noted above, Colbeck s claim already enjoys the adequate protection of a substantial equity cushion. Absent a dramatic change in the circumstances of these cases, that is all Colbeck is entitled to /

6 CONCLUSION For all the foregoing reasons, Solus respectfully requests that the Court should overrule the Limited Objection and enter an order approving the DIP Motion. Dated: March 7, 2011 New York, New York QUINN EMANUEL URQUHART & SULLIVAN, LLP /s/ Susheel Kirpalani Susheel Kirpalani Scott C. Shelley Daniel S. Holzman 51 Madison Avenue, 22nd Floor New York, New York Telephone: (212) Facsimile: (212) Counsel to Solus Alternative Asset Management LP /