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Solus Springs $589M Equity Play in LightSquared Trial

Solus Alternative Asset Management LP on Tuesday offered LightSquared Inc. $589 million in new cash aimed at soothing creditor complaints about the wireless venture’s restructuring strategy and securing an ownership stake in the reorganized LightSquared.
At the second day of a weeklong trial in New York bankruptcy court, lawyers revealed that Solus had floated an amendment to LightSquared’s Chapter 11 exit plan to buy a 34 percent equity interest and improve repayment terms for Charlie Ergen, the debtor’s largest single creditor.
Under the plan revision, Solus would pay off $500 million worth of Ergen’s claim in cash and supply an additional $89 million in capital investment in exchange for the ownership stake. As currently written, the plan calls for Fortress Credit Opportunities Advisors LLC and Centerbridge Partners LP to provide that financing, taking an identical 34 percent equity interest in return.
“For the same stock percentage, we’re paying $500 million more,” Robert Stark of Brown Rudnick LLP, an attorney for Solus, said.
LightSquared, the wireless venture backed by hedge fund magnate Philip Falcone, is trying to leverage favorable results from the federal government's recent wireless spectrum auction to exit Chapter 11 under a plan that values its business at $9.6 billion. The revised Solus offer came in response to LightSquared’s announcement Monday that it would modify its plan to let certain secured lenders, including Ergen, satisfy up to $400 million of their claims in cash rather than accepting refinanced debt.
“We would up the ante — instead of $400 million we would put in $500 million,” Stark said. LightSquared’s independent committee will consider whether to incorporate the proposal into its Chapter 11 plan, according to its attorney Joshua Sussberg of Kirkland & Ellis LLP.
U.S. Bankruptcy Judge Shelley C. Chapman has not yet ruled on the debtor’s plan, which would repay lenders with a mix of cash and replacement debt while preserving a 44 percent ownership stake for longtime LightSquared sponsor Harbinger Capital Partners LLC and handing the debtor's remaining equity interests to Fortress, Centerbridge and SIG Holdings Inc., a JPMorgan Chase & Co. affiliate. Trial on the plan is scheduled to last a week, possibly longer.
Seven previous plans have failed, either abandoned before they were put to paper or denied by Judge Chapman. Whether LightSquared's latest plan treats creditors fairly hinges largely on how much LightSquared's valuable spectrum assets are worth, a tricky question when regulators have blocked its proposed nationwide network since 2012.
Falcone, who resigned from the LightSquared board last year, has long insisted that the company will be worth billions once it wins approval of a spectrum licensing application that the Federal Communications Commission denied in 2012. LightSquared’s valuation speaks directly to creditor recoveries — the stronger the company, the more debt it can support and the less pain for junior creditors and stockholders.
Should Judge Chapman elect not to confirm the debtor’s strategy, Solus, a creditor and preferred shareholder, has proposed an alternative plan to take a controlling equity stake in exchange for providing $742 million in bankruptcy financing.
Both plans face objections from Ergen, who is fighting for better terms on a $1.3 billion claim by his investment vehicle SP Special Opportunities LLC. Judge Chapman ruled last year that Ergen could be partially wiped out due to his stealthy acquisition of LightSquared’s debt, which he did before anyone knew that he controlled the fund. Harbinger had sued SPSO, claiming that Ergen schemed to infiltrate LightSquared’s capital structure to position Dish as a potential buyer for certain spectrum assets.
Solus is represented by Robert J. Stark, Jacob T. Beiswenger, Steven B. Levine, Sunni P. Beville, James W. Stoll, Jonathan D. Marshall and Brian T. Rice of Brown Rudnick LLP.
SPSO is represented by Rachel C. Strickland, Tariq Mundiya, James C. Dugan and Norman P. Ostrove of Willkie Farr & Gallagher LLP.
LightSquared is represented by Matthew S. Barr, Alan J. Stone, Michael L. Hirschfeld and Andrew M. Leblanc of Milbank Tweed Hadley & McCloy LLP. LightSquared’s 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.