LightSquared Judge Says No More Delays To Ch. 11 Trial

LightSquared Inc. is heading toward another contested trial on a strategy to emerge from bankruptcy protection, but lawyers for its fiercest opponent and largest single creditor, Dish Network Corp. Chairman Charlie Ergen, said they would seek yet more delay to appeal an unfavorable ruling.

U.S. Bankruptcy Judge Shelley Chapman excluded an important piece of evidence Wednesday from Ergen’s attempt to derail the wireless venture’s Chapter 11 strategy ahead of a weeklong trial scheduled to begin March 9 that could bring its long, contentious and extremely costly bankruptcy to a close.

The upcoming trial, which centers on the hotly disputed question of how much LightSquared is worth, features a familiar rematch of Harbinger Capital Partners, LightSquared’s controlling shareholder, versus Ergen, who Harbinger has been at odds with from the beginning of the now 22-month old bankruptcy.

Backed by LightSquared, Harbinger is pushing a proposal to retain a 44 percent equity stake while handing the rest to co-proponents Fortress Investment Group LLC, Centerbridge Partners LP and SIG Holdings Inc., a JPMorgan Chase & Co. affiliate.

With Ergen staunchly opposed, winning confirmation was hard enough. But last week LightSquared creditor and preferred stockholder Solus Alternative Asset Management LP floated a rival reorganization plan designed to compete with Harbinger’s along with a $742 million financing commitment.

At the last scheduled pretrial hearing Wednesday, Judge Chapman made several decisions on the structure of the trial, with the parties aiming to deliver closing arguments on March 13. The judge also excluded a non-expert witness on wireless spectrum valuation from testifying on behalf of Ergen’s investment vehicle, SP Special Opportunities LLC.

Despite pleas from SPSO lawyer Tariq Mundiya of Willkie Farr & Gallagher LLP for “the court’s indulgence,” Judge Chapman said that SPSO inexcusably failed to offer the proposed witness for deposition until after a court-imposed deadline. The judge struck the individual's report from evidence and barred another SPSO expert, Millstein & Co. CEO James Millstein, from relying on it.

“You made a litigation strategy decision to not offer him, and now you've thought better of it,” the judge said from the bench.

Mundiya signaled that SPSO would appeal immediately and ask a higher court to pause the confirmation proceedings pending the outcome.

LightSquared filed for Chapter 11 in 2012 after the U.S. Federal Communications Commission refused to approve its proposed nationwide launch over concerns about interference with global positioning system technologies.

Under Solus’ plan, which includes a separate $1.25 billion backstop commitment, the hedge fund would partially convert its bankruptcy financing into preferred shares of the debtor’s LightSquared LP unit and a majority stake in the parent company’s stock.

Under a toggle provision, SPSO can receive a $500 million cash payment for about $800 million in asserted prepetition claims if it supports the plan. SPSO would also receive $500 million in replacement debt in satisfaction of its claims that would have priority prepayment rights over Solus’ own take-back paper.

There was no indication which way SPSO was leaning, although the judge said she would be “very interested” in a plan that both SPSO and Solus support. Also opposing the Harbinger plan are existing LightSquared LP stockholders Providence Equity Partners LLC and Centaurus Capital LP, which say that it rests on overly pessimistic valuation assumptions.

The judge said she would first rule on whether LightSquared’s plan could be confirmed under the U.S. Bankruptcy Code, and whether she would accept it, before considering the Solus plan and possibly choosing between the two.

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.

Providence is represented by Emanuel C. Grillo of Baker Botts LLP. Centaurus is represented by Jeffrey S. Sabin, Edward P. Boyle and Carol Weiner Levy of Venable LLP.

Harbinger is represented by David M. Friedman, Adam L. Shiff, Daniel A. Fliman and Matthew B. Stein of Kasowitz Benson Torres & Friedman 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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