Falcone Won't Give Up On LightSquared Equity Play

Philip Falcone’s hedge fund signaled Thursday that it won’t abandon efforts to split up LightSquared Inc. and erase a competing lending group’s $1.7 billion debt claim to salvage its ownership stake in the bankrupt wireless venture.

Harbinger Capital Partners LLC, the debtor’s controlling shareholder, appealed a bankruptcy court ruling that torpedoed its attempt to split the LightSquared Inc. parent company off from the LightSquared LP subsidiary and reorganize each estate separately. The plan depended on wiping out a guaranty claim against the Inc. estate asserted by a group of secured lenders to the LP unit.
 
When U.S. Bankruptcy Judge Shelley C. Chapman rejected that request on Oct. 30, creditors including Dish Network Corp. Chairman Charlie Ergen came together around a new Chapter 11 proposal to keep LightSquared unified and seize control from Falcone.
 
Ergen would wind up with a 60 percent stake, a result that Harbinger’s attorney David Friedman of Kasowitz Benson Torres & Friedman LLP said would make a “mockery” of Ergen’s earlier testimony that he had no interest in running the company.
 
Harbinger’s Wednesday filing did not detail its grounds for appeal, and its attorneys did not return a request for comment. It remains unclear whether Harbinger can offer up an amended plan that complies with Judge Chapman’s ruling.
 
After LightSquared entered Chapter 11, the LP lenders brought a $1.7 billion claim against the debtor, saying it had guaranteed their debt under a credit agreement. Canceling the guaranty, the judge ruled, would let Harbinger “leapfrog” the LP lenders and pay out its equity interests before the claims of creditors with collateral rights were satisfied.
 
The guaranty allows the LP lenders to go after the Inc. entities for full payment in cash, while under Harbinger’s plan they would receive only equity collateral.
 
The new Ergen-led plan calls for raising $750 million in working capital and has the support of every major stakeholder but Harbinger. Ergen would roll $1 billion of his secured claim into a new $2.2 billion junior facility and equitize the remaining $300 million.
 
The LP lending group — hedge funds holding bank debt — 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 lenders, which had been advancing their own plan to rival Harbinger’s, also would pick up an 8 percent equity stake with warrants for up to 15 percent.
 
The plan would give JPMorgan Chase & Co., Harbinger’s onetime running partner, a 32 percent stake and pay off Mast Capital Management LLC, the other major Inc. stakeholder, in cash.
 
LightSquared attorney Joshua Sussberg of Kirkland & Ellis LLP had said papers on the plan would be filed and discussed at a Friday hearing. No plan has materialized, and the hearing was canceled without being rescheduled.
 
Handing Ergen a controlling stake would mark a remarkable reversal for LightSquared, which has spent much of its arduous two-year bankruptcy trying to expel him from its capital structure. LightSquared fell into bankruptcy in 2012 when the Federal Communications Commission refused to approve its nationwide wireless network over concerns about interference with global positioning systems.
 
Friedman said at the most recent hearing that Ergen would be getting his controlling stake at a substantial discount under the rival plan. Harbinger has long insisted that the equity in the LP unit, which houses most of the spectrum, will be worth billions once the FCC gives the go-ahead, enough to pay off the LP lenders in full.
 
LightSquared unveiled a Chapter 11 plan with Ergen at the center once before but never filed a plan around that tentative 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 LightSquared special committee is represented by James H.M. Sprayregen, Paul M. Basta and Joshua A. Sussberg of Kirkland & Ellis.
 
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.

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