Bloomberg News

LightSquared Reaches Accord With Ergen on Reorganization

July 14, 2014

Philip Falcone’s LightSquared Inc. settled a fight with Dish Network Corp. Chairman Charles Ergen over more than $1 billion in debt he holds in the bankrupt wireless broadband company, taking it one step closer to exiting court protection.

Details of a new Chapter 11 plan will be filed within a week, Joshua Sussberg, a lawyer for a special committee of LightSquared, told U.S. Bankruptcy Judge Shelley Chapman at a hearing in Manhattan today. A dispute between the company and Ergen, its one-time suitor, scuttled a prior plan to reorganize.

The deal with Ergen, which has yet to be completed, “will alleviate a significant burden and execution risk around the plan,” Sussberg said.

During LightSquared’s attempt to negotiate a prior plan, Falcone had accused Ergen of accumulating the debt in secret and of trying to hijack the reorganization. Falcone’s Harbinger Capital Partners LLC fought to send Ergen to the back of the line of creditors to be repaid. The investment fund sued Ergen and Englewood, Colorado-based Dish, accusing them of using “improper tactics” while trying to obtain LightSquared’s airwaves.

The new agreement will replace a planned $1.3 billion in funding for the company’s bankruptcy exit that JPMorgan Chase & Co. (JPM:US) was to raise in the marketplace, Sussberg said.

New Plan

Under the plan, Ergen will get a $1 billion claim, which would represent a $316 million reduction to his initial claim. When the company exits bankruptcy, that would roll into a new loan for the company, and Ergen will provide an additional $300 million in financing, Sussberg said.

“It’s a stunning reversal to us,” said David Friedman, a lawyer for Harbinger, noting that his client and other parties had previously discussed keeping competitors like Ergen out of the company’s capital structure. He expressed concerns about whether the plan would try to limit a lawsuit Harbinger filed against the federal government.

On July 11, Harbinger sued the U.S. over the Federal Communications Commission’s refusal to approve the company’s wireless broadband service, saying it had reneged on a 2010 commitment under which Harbinger agreed to invest billions of dollars to build a network to government specifications.

FCC Block

LightSquared, based in Reston, Virginia, sought bankruptcy protection in 2012 after the FCC blocked its service, saying it might interfere with global positioning system navigation equipment. LightSquared still hasn’t obtained U.S. regulatory approval to use its airwaves.

An auction of the airwaves in Manhattan bankruptcy court last year attracted only one bid, a $2.2 billion offer from Ergen. He dropped out at the last minute, citing a technical issue that hasn’t been explained publicly.

U.S. Bankruptcy Judge Robert Drain in New York, assigned to mediate the dispute between Ergen and LightSquared, announced the resolution earlier today in court papers, saying he had continued to work with the parties after mediation had officially ended June 23. Falcone and other Harbinger-appointed directors left LightSquared’s board in June.

Chapman ordered the mediation after she said a prior plan, designed by Falcone, the company’s controlling shareholder, was unfair to Ergen. She also criticized Ergen’s actions during the case.

Rachel Strickland, a lawyer for Ergen, told Chapman that Drain was an “MVP,” or most valuable player, for his role in the negotiations. She didn’t immediately return a call seeking comment on the agreement.

Chapman said a date for a trial to seek final confirmation of the plan will be decided July 22, with late August being a likely deadline.

The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net

To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net David E. Rovella


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