LightSquared files plan to exit Chapter 11

February 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Wireless venture company LightSquared has filed a restructuring plan with the US Bankruptcy Court in Manhattan to exit Chapter 11 bankruptcy under the control of its biggest lender, Dish Network Corp.

The company originally filed for Chapter 11 in May 2012 after the Federal Communications Commission refused to give permission for the launch of the network. The FCC was acting on advice from the global positioning systems industry, which warned that LightSquared’s proposed wireless network, which had promised high-speed wireless coverage across the United States, could interfere with GPS. Since that time, LightSquared has racked up losses exceeding $1.8bn.

Following the Chapter 11 filing, Harbinger Capital Partners, which owns LightSquared, has been striving to keep a measure of control by breaking up the company, even though lawyers for LightSquared would prefer to keep it together. Any deal struck between LightSquared and its lenders – which would not have the support of Harbinger – would mean that moves to break up the company would be avoided and equity would be distributed to lenders including investment firms Fortress Investment Group LLC and Centerbridge Partners LP, as well as Dish.

Under the terms of the restructuring plan, the result of mediation with US bankruptcy judge Robert Drain, LightSquared would obtain a $750m credit line while Charles Ergen, chairman of Dish, would receive a 60 percent controlling stake in the company and be required to put up $1bn of a $2.2bn post-bankruptcy junior loan. Mr Ergen has been engaged in litigation with Harbinger’s founder, Philip Falcone, over the fate of LightSquared assets for more than a year.

During this time, Harbinger proposed numerous solutions including breaking up LightSquared while retaining a stake in a smaller piece of the company, called LightSquared Inc. However, US bankruptcy judge Shelley Chapman put paid to that plan, ruling that other lenders had superseding claims.

While it is possible that Harbinger could again try to propose a competing restructuring proposal, this appears unlikely now that all of the major stakeholders have pledged their support for the latest plan.

Under the new plan, Harbinger would be the largest shareholder, owning 44.4 percent of LightSquared’s equity. Fortress would get 26.2 percent, and Centerbridge 8.1 percent. Mr Ergen, who is owed more than $1bn through his SPSO investment vehicle, would be paid off with a five-year note and the rest of the equity would go to current investors in LightSquared Inc, also via a note.

“It (the restructuring plan) represents the most recoveries for the most parties,” said Joshua A. Sussberg of Kirkland & Ellis LLP, a lawyer for the special committee in charge of LightSquared. Mr Sussberg also confirmed that $1.25bn in new money would be pumped into LightSquared as a springboard out of bankruptcy.

While remaining the largest shareholders, under the terms of the plan, Mr Falcone and the Harbinger Capital Partners hedge fund would have no representation on the new-look LightSquared board of directors and would have no say in the day-to-day running of the company. In fact, Centerbridge and Fortress would pick three of the board’s seven members if the new plan is taken up.

Although looking promising, the proposal still faces major hurdles – in the main the need for approval from Judge Chapman. The judge had expressed some scepticism as to LightSquared’s desire to have the new plan confirmed before the end of 2014 and had kept 15 December open as a potential court date.

However, lawyers for Harbinger pushed for a slowed timeline which resulted in Judge Chapman stating that she thought a hearing in the New Year might be “more reasonable.”

Fraser Tennant