A group of bond holders is seeking to derail the $1.1 billion bid for DBSD North America by DISH Network, citing the risk that DISH will walk away from the deal.

DISH agreed to bid for DBSD, a satellite communications company which has been in bankruptcy proceedings since May of 2009. If DISH walks away from the deal the company will have to pay a $25 million breakup fee.

But one group of bondholders is worried that DISH may do just that. If that happens, then DBSD will be back where it was when the company filed for bankruptcy: seeking a buyer. A hearing in New York State Bankruptcy Court is scheduled for Feb. 15.

DBSD originally secured its debt with the satellite spectrum it holds, some of which was acquired from Sprint Nextel. When it took out nearly $790 million in debt, the spectrum was the asset that secured the largest portion.

The group of bondholders, known as the ad hoc committee of unsecured creditors, holds a large part of $650 million of 7.5% bonds that were originally due in 2009. Their contention is that even with the breakup fee, there is a real possibility DISH could decide not to buy DBSD. Essentially, they say, DISH is buying an option rather than committing to a purchase.

DISH has said it is willing to provide an $87.5 million loan to DBSD to keep it operating, which shows it is committed to buying the company. DISH owns $40 million in first lien loans. Another $111 million of the 7.5% notes is owned by Chesapeake Capital Advisors, a hedge fund that has signed the filings in support of DISH.

DISH and the ad hoc committee aren't the only two parties fighting over the ultimate fate of DBSD. Sprint says it is owed $200 million in costs for clearing out the spectrum that was originally sold to DBSD. The current bankruptcy plans call for Sprint to get about half of that, $104 million.

The bankruptcy plan has also had to go through several iterations. Originally a plan was hammered out that called for creditors to take 95% of the equity of a reorganized DBSD in exchange for their notes, while DISH would have retained the $40 million in loans under new terms. But that plan was appealed to the Second Circuit Appeals Court overturned it.

DBSD is developing a satellite constellation coupled with a terrestrial network that would provide voice and data services.

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