EchoStar's bankrupt subsidiary, Hughes Network Systems, won interim court approval to maintain exclusive control over its chapter 11 case, fending off a creditor group's bid to propose its alternative restructuring plan.
U.S. Bankruptcy Judge Alfredo Perez in Houston on Tuesday denied a group of creditors' motion to terminate Hughes's exclusivity period and scheduled a final ruling for Dec. 1.
The group of creditors, including Capital Group, Silver Point Capital and Lord Abbett, sought to file a competing reorganization proposal. Under their proposed restructuring, these senior secured noteholders would take ownership of the reorganized satellite provider and establish a litigation trust to pursue claims against EchoStar and its executives.
Hughes Network said the competing proposal violates bankruptcy rules, which typically grant a company the exclusive right to propose a plan during the first 120 days in chapter 11.
Giving Hughes Network 120 days to work through its "significant challenges is not unreasonable," Perez said in Tuesday's hearing. The noteholders filed the motion less than 40 days into the case.
The fact that the noteholder group and an unsecured creditors' committee banded together to support a plan isn't enough to terminate the exclusivity period, Perez added.
"Carried to its logical conclusion, the creditors could enter into a co-op agreement prepetition which would bind them to accept a creditor plan and use that to terminate exclusivity," he said. This could "eviscerate" certain sections of the bankruptcy code, he added.
Hughes Network filed for chapter 11 in early August to restructure its $1.5 billion in debt. Early in the case, its creditors and the U.S. Trustee's Office, part of the Justice Department that oversees the nation's bankruptcy system, raised concerns about Hughes's transfer of more than $1 billion in dividend payments to its parent, EchoStar, in 2024. EchoStar is controlled by billionaire Charlie Ergen.
The creditors said these dividends could have been used to repay their claims, and instead benefited EchoStar. A special committee is currently investigating these payments among other concerns raised by the noteholders.
The noteholders and Hughes Network spent weeks in mediation, but they failed to agree on a path forward. The creditors said in court filings earlier this month that the company doesn't have a bankruptcy plan, a banker, a sale process or debtor-in-possession financing lined up. The group also raised concerns in court papers last week that their claims won't be repaid and that the bankruptcy would be converted to a chapter 7 wind down.
Hughes Network said in bankruptcy filings that it has made "substantial" progress in stabilizing its business, improving its liquidity and deferring certain lease payments to EchoStar that could have drained cash from the company.
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