LightSquared Offers Ch. 11 Plan Averting Ergen Debt Brawl

LightSquared Inc. on Thursday filed a revamped Chapter 11 exit plan that proposes an equity auction for the reorganized company and heralds a possible resolution with Dish Network Corp. Chairman and longtime opponent Charlie Ergen.

The joint plan filed by LightSquared and a group of bank lenders tweaked several aspects of a tentative deal announced last month in court that seemed to spell the end of the wireless venture's scorched-earth battle with Ergen, its largest prepetition creditor, over the $1 billion in secured debt he holds through his investment vehicle SP Special Opportunities LLC.

SPSO would see a $900 million allowed claim under the latest plan. Should Ergen choose to support it, the plan would avert what promised to be a bruising fight over how much of his claim should be subordinated due to his stealthy acquisition of the debt, which U.S. Bankruptcy Judge Shelly C. Chapman already has found was done in violation of a credit agreement.

LightSquared’s bank lenders would provide $500 million in working capital. With Ergen on board, the company will fund its way out of bankruptcy with a $1 billion loan, presumably from SPSO. Without him, the term loan increases to $1.2 billion or potentially more.

Senior lenders will be satisfied in full, according to the plan, and junior stakeholders could be in the money from the proceeds of an auction of common equity in the reorganized LightSquared.

“The plan proponents believe that the plan is currently the highest and best restructuring offer available to the debtors that will maximize the value of the estates for the benefit of the debtors’ creditors and equity holders,” it said. “It is the only restructuring proposal that avoids a value-minimizing liquidation, and is the only path currently available for the debtors to successfully exit the Chapter 11 cases.”

The proponents would also bring an action in bankruptcy court to block LightSquared’s controlling shareholder, Harbinger Capital Partners LLC, from asserting any claim in court “that is, or directly affects” LightSquared property. Before LightSquared brought Ergen on board with its turnaround efforts, Harbinger filed suits against key players in the U.S. GPS industry and the U.S. government blaming them for the bankruptcy.

LightSquared fell into Chapter 11 once the Federal Communications Commission declined to approve its wireless network.

Judge Chapman has scheduled a Monday hearing on the plan. It all but replaces one floated earlier in July that would have handed the company to JPMorgan Chase Bank NA, Fortress Investment Group LLC and Cerberus Capital Management LP in exchange for capital raised from the debt markets.

LightSquared already went through two trials before Judge Chapman earlier this year. The judge ruled in May that some — but not all — of Ergen’s claim should be partially subordinated, which largely adopted Harbinger's narrative 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 denied LightSquared’s request to confirm a turnaround plan backed by Harbinger, JPMorgan Chase, Fortress 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 spectrum.

Observers had predicted a resolution with Ergen following the June 17 departure of his main adversary, Philip Falcone, who owns Harbinger and resigned from the LightSquared board after spending much of the bankruptcy fighting to stay in control of the company.

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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