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LightSquared Seeks To Reclaim $1.9B Harbinger Litigation

09 October 2014

LightSquared Inc. urged a New York bankruptcy judge on Thursday to halt Harbinger Capital Partners LLC’s litigation against the global positioning industry and the federal government, which Harbinger blames for losing a $1.9 billion investment in the wireless venture.

LightSquared argued that the U.S. Bankruptcy Code’s automatic stay bars Harbinger from pursuing “special recovery” for itself on causes of action that rightfully belong to the Chapter 11 estate. Harbinger, the hedge fund run by Philip Falcone that is largely responsible for LightSquared’s creation, has filed suits against the government and the GPS industry over the Federal Communications Commission’s 2012 decision not to approve its nationwide wireless network.

The motion for a stay also said that U.S. Bankruptcy Judge Shelley C. Chapman has equitable power to stop “opportunistic stakeholders” such as Harbinger, which owns a controlling equity stake in LightSquared, from usurping claims that belong to an estate through satellite litigation.

“If Harbinger’s claims against the GPS industry and the United States proceed, Harbinger could accomplish outside of the bankruptcy what it could not do by participating in the reorganization: unilaterally leapfrogging over LightSquared’s creditors and preferred equity holders,” the motion said.

Deciding who can bring the derivative claims Harbinger is asserting should wait until after a Chapter 11 plan goes effective, according to the motion. At that point, the debtor said, it will bring a motion to put Harbinger’s suits to a stop for good.

“The current litigation is critically important to LightSquared and should not be left — to the company’s detriment — to be driven or influenced by Harbinger’s conduct,” the motion said.

The motion comes as Harbinger and a group of lenders with collateral rights over LightSquared’s spectrum assets prepare for a battle royale over their competiting plans to get the company out of bankruptcy.

Harbinger is proposing to divide the LightSquared Inc. subsidiary's estate from the LightSquared LP unit where most of the company's valuable spectrum lies and reorganizing each estate separately. The lending group, which along with Dish Network Corp. chairman Charlie Ergen holds some $2.5 billion in secured debt in the LP unit, wants to keep the company unified, saying that doing so will deliver the most value.

The LP lenders had sought to craft an LP-only plan to rival Harbinger's, but said in court this week that no financing was available for such a plan. The lenders' plan, which is expected to be submitted by Friday, contemplates rolling existing debtor-in-possession financing into an exit facility and tapping additional funding from outside LightSquared’s capital structure.

The plan would also pay off Mast Capital Management LLC’s claim against the Inc. estate in full and in cash to remove it from the equation. The LP group filed an objection to the Harbinger plan on Thursday, calling it a blatant attempt to preserve the hedge fund’s equity stake while swinging value away from secured creditors.

LightSquared and its special committee, meanwhile, share the lenders’ view on keeping the estates together but have not yet taken a position on which plan they prefer and have expressed doubts about whether a combined estate transaction is possible.

Harbinger’s plan depends on eliminating the lenders’ guaranty claims against the Inc. estate. Judge Chapman has set an Oct. 20 hearing to consider the hedge fund's motion, and a ruling in the lenders’ favor could significantly narrow the issues up for consideration at a confirmation trial the following month.

LightSquared had appeared on track to emerge from Chapter 11 in June, when it unveiled a tentative deal with Ergen, its largest pre-petition secured creditor, who had been the most vocal opponent throughout the bankruptcy. But LightSquared never filed a plan around that agreement, leaving unanswered the question of how to treat Ergen’s $1 billion claim.

Judge Chapman has already ruled that some of the claim was subject to equitable subordination due to Ergen’s stealthy acquisition of the debt, which LightSquared claims was done in violation of a credit agreement.

LightSquared is represented by Matthew S. Barr, Alan J. Stone, Michael L. Hirschfeld and Andrew M. Leblanc of Milbank Tweed Hadley & McCloy LLP and Eugene F. Assaf, Patrick F. Philbin and K. Winn Allen of Kirkland & Ellis LLP.

The LP lenders are represented by Glenn M. Kurtz, Thomas E. Lauria, Andrew C. Ambruoso and Matthew C. Brown of White & Case 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 LightSquared special committee is represented by James H.M. Sprayregen, Paul M. Basta and Joshua A. Sussberg of Kirkland & Ellis.

Centaurus is represented by Jeffrey S. Sabin and Julia Frost-Davies of Bingham McCutchen LLP. Providence is represented by Emanuel C. Grillo, Michael H. Goldstein and Gregory W. Fox of Goodwin Procter LLP.

Mast is represented by Michael S. Stamer, Philip C. Dublin and Meredith A. Lahaie of Akin Gump Strauss Hauer & Feld 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.