A federal judge on Wednesday said creditors can vote on TerreStar Networks Inc.'s bankruptcy plan, after the satellite phone company and objecting creditors settled key disputes in the case.

Judge Sean H. Lane of U.S. Bankruptcy Court in Manhattan approved the company's disclosure statement, or plain-language reading of a bankruptcy plan on which creditors must vote. Major debtholders, including Philip Falcone's Harbinger Capital Partners hedge-fund firm, had objected to both the speed of the case and what they called favorable terms to would-be parent EchoStar Corp. (SATS).

"All of these seem like excellent developments," Lane said in approving both the disclosure statement and a plan between TerreStar and EchoStar in which EchoStar would backstop a $125 million rights offering that would fund TerreStar's bankruptcy exit.

An ad-hoc group that holds about $335 million in senior debt had presented a competing backstop plan with lower fees and a commitment to backstop the entire $125 million rights offering, rather than the $100 million in the EchoStar plan. As part of the settlement, EchoStar will now up its commitment to backstop the entire $125 million.

"It has been a very productive 36 hours," Patrick J. Nash, Jr., of Kirkland & Ellis LLP, a lawyer for the ad-hoc creditors, said of the settlement.

TerreStar is exploring a sale of the company concurrent with its bankruptcy process, and creditors were worried that the fast pace of the case would thwart any possible sale, which may fetch more than the $1.215 billion value TerreStar's bankruptcy places on the company. Part of the settlement is that the company will take more time before asking the court to confirm the plan, pushing back any hearing on confirmation to early March.

The Wall Street Journal reported that MetroPCS Communications Inc. (PCS) is one of the parties interested in TerreStar's assets. At Monday's contentious hearing, TerreStar lawyer Arik Preis of Akin Gump Strauss Hauer & Feld confirmed the company is talking to bidders. Just before adjourning that hearing, which was over the EchoStar backstop agreement, Lane called the two sides into his chambers and apparently urged the two sides to negotiate.

A lawyer for Sprint Nextel Corp. (S) still objected to the disclosure statement over the timing of the case, saying the company didn't think it left Sprint enough time to litigate claims it has against TerreStar. Lane overruled that objection.

Reston, Va.-based TerreStar, which is trying to build the first satellite smartphone, filed for Chapter 11 in Manhattan in October with a plan calling for secured noteholders like EchoStar to swap more than $850 million in debt for nearly all the equity in a reorganized TerreStar. More junior creditors, however, will get just pennies on the dollar and existing equity holders are set to get nothing.

TerreStar launched its first satellite in July of last year and is still planning to build a second. To fund the second satellite, the telecommunications company tapped a $100 million credit line from Harbinger and EchoStar.

Harbinger and EchoStar are also among the largest holders of TerreStar's publicly traded parent company, which didn't file for Chapter 11 protection.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com
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