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Ergen Deal Could Be LightSquared’s Ticket Out Of Ch. 11

LightSquared Inc. unveiled a bankruptcy exit plan with broad consensus from stakeholders Monday that hands control of the wireless venture to Dish Network Corp. chairman Charlie Ergen and extinguishes the ownership stake of Philip Falcone’s Harbinger Capital Partners LLC.

The agreement sketched out at a hearing in New York bankruptcy court would hand Ergen a 60 percent stake in the reorganized LightSquared, a remarkable reversal after the company spent much of its two-year bankruptcy trying to expel him from its capital structure.
The proposed restructuring represents a consensus among every major LightSquared stakeholder but Harbinger. The parties nailed down the key terms at a closed-door mediation session Friday following a ruling from U.S. Bankruptcy Judge Shelley C. Chapman that all but ended the hedge fund's attempt to split LightSquared in two to salvage an equity position.
Judge Chapman still must confirm the new plan, which keeps LightSquared unified and has the support of a group of secured lenders to the debtor’s LightSquared LP unit, plus Harbinger’s former running partners JPMorgan Chase & Co. and Mast Capital Management LLC. A plan formally memorializing the new peace will be filed by next week, according to LightSquared attorney Joshua Sussberg of Kirkland & Ellis LLP.
Under the agreement, Ergen would roll $1 billion of his secured claim into a new $2.2 billion junior debt facility and equitize the remaining $300 million for a controlling stake in the reorganized entity. A group of secured lenders to the LightSquared LP unit would fund the rest of the second-lien facility through their existing debt, with their new five-year paper standing on equal footing with Ergen’s.
The plan would also pay off Mast’s claim against the LightSquared Inc. parent company in cash and give JPMorgan, the other main stakeholder in the so-called Inc. estate, 31 percent equity ownership and a seat on LightSquared’s five-person board.
The LP lenders, which had been championing their own plan to rival Harbinger’s, would pick up an 8 percent equity stake, with warrants allowing them to raise that to 15 percent.
As for Harbinger, its $189 million in subordinated debt claim would be paid off by JPMorgan and the LP lenders to the extent that Judge Chapman decides is appropriate.
Absent another settlement, Harbinger is sure to oppose the plan. The hedge fund’s attorney David Friedman of Kasowitz Benson Torres & Friedman LLP told Judge Chapman that it was “untenable” for Ergen, as the head of a competing enterprise, to sit atop LightSquared’s capital structure, especially after he had proclaimed in open court that he had no interest in owning the company.
LightSquared went through a bitter trial last year accusing Ergen of secretly buying up its debt through his investment vehicle SP Special Opportunities LLC in order to infiltrate its capital structure for Dish’s benefit. Ergen maintained that he was investing only for himself.
Judge Chapman ruled that Ergen deserved to be partially wiped out due to his stealthy acquisition of the debt. If the new restructuring takes hold, however, it will avert a bruising fight over how much of his claim is subordinated.
“Not only is Mr. Ergen going to have a billion dollars in senior debt ... he now is also going to own the company,” Friedman said. “Giving him the keys to the company is not without controversy, without significant issue, for us.”
LightSquared had proposed to tap Ergen to fund its way out of bankruptcy once before but never filed a plan around that agreement. The company fell into bankruptcy in 2012 after the Federal Communications Commission refused to let it launch its nationwide wireless network over concerns about interference with global positioning systems.
Falcone has spent the bulk of the bankruptcy fighting to stay in control of LightSquared but eventually resigned along with four other Harbinger-appointed directors.
Harbinger’s subsequent Chapter 11 plan called for divorcing the LP and Inc. units and paying off the LP lenders with the equity collateral in that unit, with Harbinger retaining a stake in the reorganized Inc. entity. Judge Chapman effectively killed that idea last week by ruling that the LP lenders could continue to demand payment in full and in cash from the Inc. entities.
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 LightSquared special committee is represented by James H.M. Sprayregen, Paul M. Basta and Joshua A. Sussberg 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.
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.