Motient said the arrangement should mean no interruption for customers who use its network. Motient operates the smaller of two U.S. networks on which the BlackBerry runs. Analysts had warned for months that the company's cash woes could lead it to restructure or even shut down.
It's been a tough time for a number of wireless networks. Metricom, operator of the high-speed Ricochet network, shut down its service in August after filing for bankruptcy protection a month earlier. MobileStar, which provides wireless Internet service to about 500 Starbucks coffee shops also shut down its service last October; however, service was restored the following month.
Under the terms of the deal, which must be approved by a federal judge, Motient will convert much of its debt into stock. If the restructuring is completed as proposed, Motient said it will eliminate more than $40 million in annual interest payments and could reach breakeven, before earnings before interest, taxes, depreciation and amortization (EBITDA), this year.
"This restructuring allows Motient to proactively eliminate substantially all of its debt and to significantly improve our ability to achieve EBITDA breakeven later this year," Motient CEO Walter V. Purnell Jr. said in a statement. "Even more significant, the restructuring will not affect the operations of our nationwide wireless data network, our customers or our employees."
Motient said that debt holders representing more than 50 percent of the value of its senior notes have agreed in principle to vote in favor of the proposed restructuring. Under the plan, the note holders would exchange their notes for new Motient stock. Existing owners of the company's stock would get warrants to purchase, in aggregate, up to 5 percent of the company's new common stock. Those warrants would be exercisable only after the senior note holders have recovered 105 percent of the face amount of their investment.
Trading in Motient's shares was halted at 10:28 a.m. PT by the Nasdaq, which requested more information from the company. Before the halt, shares last traded at 26 cents, down 12 cents, or 31.5 percent.
Eddie Woo, an analyst at CIBC World Markets, said the Motient network is expected to keep running given that it has some major customers, such as the United Parcel Service.
"It's a pretty important network for business," Woo said. "But it's becoming less important for RIM over time" because RIM is increasingly focusing on next-generation wireless networks.
"Typically, common shareholders have gotten nothing from the numerous companies that have been in trouble, but not here," Motient's Purnell said in an interview with CNET News.com. "Here they get 5 percent of the company, once we get things turned around. They're diluted but not wiped out."
"We have enough cash to operate for the rest of the year and we anticipate getting to profitability later this year," Purnell said. "We want to get through this restructuring so that there is little doubt in our customers' minds" that the company is sound.
Purnell added that because the company has cash, he anticipates no effect on operations, customers or network performance.
Motient's business is increasingly focused on providing wireless networking coverage for handhelds, such as the BlackBerry devices.
The company recently released a wireless modem that gives two-way communications capabilities to Palm V series handhelds. Purnell said that the large number of Palm V owners, about 6 million according to Purnell, is a key opportunity for the future of Motient's business.
RIM Vice President Mark Guibert said that although the term "Chapter 11" can have a negative connotation, the news is actually positive for RIM, assuring that Motient will be a partner of the BlackBerry maker for the foreseeable future.
"It is a positive thing for us," Guibert said. "It demonstrates their financial plan."
News.com's Richard Shim contributed to this report.