LightSquared Inc. brought Dish Network Corp. Chairman Charlie Ergen on board to a new Chapter 11 exit plan, unveiling a surprise deal on Monday that calls for the creditor and longtime opponent to fund the wireless venture’s way out of bankruptcy.
Anchored by $1.3 billion in new financing that Ergen will provide, the revamped reorganization plan would finally resolve an acrimonious dispute over roughly $1 billion in LightSquared secured debt he holds through his investment vehicle SP Special Opportunities LLC that has dominated the rollercoaster bankruptcy.
The plan will be put to paper within a week, said Joshua A. Sussberg of Kirkland & Ellis LLP, representing LightSquared’s special independent committee. If it wins approval from U.S. Bankruptcy Judge Shelley C. Chapman, Ergen would transform into LightSquared’s primary post-bankruptcy lender, a stunning turnaround given the debtor’s monthslong campaign to expel him from its capital structure.
Under the plan, SPSO would get a $1 billion allowed claim that would roll into a new first-lien lending facility when LightSquared exits Chapter 11. Ergen would then furnish an additional $300 million in financing, replacing JPMorgan Chase Bank NA, which had agreed to provide post-bankruptcy lending from the debt market under a tentative plan announced two weeks ago.
Ergen did not support the previous proposal but arrived at the new version in the course of extended mediation discussions with the committee before U.S. Bankruptcy Judge Robert Drain. The $1 billion allowed claim would represent a $316 million haircut.
“The framework that’s been put in place with SPSO will alleviate a significant execution risk around the plan,” Sussberg said in court.
Observers had predicted a resolution with Ergen following the June 17 departure of his main adversary, Philip Falcone, who controls LightSquared majority shareholder Harbinger Capital Partners LLC. Falcone spent the bulk of the two-year-long bankruptcy fighting to stay in control of LightSquared but eventually resigned along with four other Harbinger-appointed directors from the board. The move was expected, but not so soon, and was taken by some as a sign of progress in the mediation.
LightSquared already went through two trials before Judge Chapman earlier this year. In May, the judge ruled in one trial that some — but not all — of Ergen’s claim would be partially subordinated because of his shady acquisition of the secured debt. Harbinger claimed that Ergen concealed his control over SPSO in order to position Dish to scoop up the debtor’s valuable wireless spectrum assets out of bankruptcy.
That same month, the judge rejected LightSquared’s request to confirm a turnaround plan backed by Harbinger, JPMorgan Chase, Fortress Investment Group LLC and Melody Capital Partners LP on the grounds that the plan's treatment of Ergen — paying him in full over the course of seven years — relied too heavily on uncertain federal regulatory approval for licensing certain spectrum.
If LightSquared effectuates the settlement announced Monday, it would avoid another trial to determine how much of Ergen’s debt would be subordinated under the new plan.
Even with Ergen on board, the new deal is sure to face substantial opposition. Harbinger’s attorney David M. Friedman of Kasowitz Benson Torres & Friedman LLP called it a “stunning reversal to the business thesis that we had signed on to,” which called for excluding competitors from LightSquared’s capital structure. Attorneys for other lenders expressed concern about putting SPSO in charge of the new exit facility and said that protections would have to be carved out for minority lenders.
Friedman also said that any deal should not extinguish claims Harbinger has asserted against the U.S. government in a lawsuit filed Friday in the U.S. Court of Federal Claims that seeks damages based on the Federal Communications Commission’s 2012 refusal to allow the company’s use of certain wireless spectrum. LightSquared filed for bankruptcy shortly thereafter.
The proposed plan is also contingent on Ergen obtaining releases from the debtor plus its creditors and equity holders, which would effectively shut down a suit Harbinger filed last week in Colorado seeking $1.5 billion from Ergen under federal racketeering laws.
LightSquared is represented by Matthew S. Barr, Alan J. Stone, Michael L. Hirschfeld and Andrew M. Leblanc of Milbank Tweed Hadley & McCloy LLP.
Harbinger is represented by David M. Friedman, Adam L. Shiff, Daniel A. Fliman and Matthew B. Stein of Kasowitz Benson Torres & Friedman LLP.
Ergen and SPSO are represented by Rachel Strickland, James C. Dugan and Matthew Freimuth of Willkie Farr & Gallagher LLP.
The special committee is represented by James H.M. Sprayregen, Paul M. Basta and Joshua A. Sussberg of Kirkland & Ellis LLP.
The case is In re: LightSquared Inc., case number 1:12-bk-12080, in the U.S. Bankruptcy Court for the Southern District of New York.
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