LightSquared creditor looks to unload debt: sources

NEW YORK Thu Apr 12, 2012 12:35pm EDT

NEW YORK (Reuters) - The fate of hedge fund manager Philip Falcone's upstart telecom may hang in the balance, but some distressed investors are still wheeling and dealing in LightSquared debt.

A financial institution controlled by billionaire investor Andrew Beal is trying to sell $150 million in bank debt that LightSquared has issued to raise money for its proposed nationwide wireless network, say three traders familiar with the situation.

Plano, Texas-based Beal Bank began seeking bids this week for the debt, which last traded in the secondary market at around 50 cents on the dollar. Traders say it does not appear the $150 million block of bank debt has been sold.

A spokesman for Beal declined to comment. Falcone did not respond to an email seeking comment.

The move by Beal to sell the debt comes a week after Falcone, whose $3.8 billion Harbinger Capital Partners is LightSquared's primary owner, said he is seriously considering a voluntary bankruptcy for the money-losing Reston, Virginia-based telecom.

Falcone made his comments as some of LightSquared's creditors consider whether to declare the telecom to be in default on some $1.5 billion in bank debt and move to push the company into bankruptcy themselves.

LightSquared is teetering on the verge of bankruptcy after the Federal Communications Commission in February withdrew a conditional waiver that would allow the telecom to build out its network. The FCC withdrew the waiver after tests revealed that LightSquared's planned network would interfere with crucial satellite systems used for critical services such as aviation safety and the Department of Defense.

The FCC action came after bitter protests from a trade group representing companies that rely on Global Positioning Systems, which operate in a spectrum close to LightSquared.

Hedge funds Fortress Investment Group (FIG.N), Knighthead Capital Management and Redwood Capital Management, which also own some of LightSquared's bank debt, recently sent a letter to the FCC asking them to reconsider the February decision.

Beal acquired its portion of LightSquared's bank debt in the secondary market at the same time activist investor Carl Icahn and David Tepper's Appaloosa Management were buying LightSquared debt. Over the years, Icahn and Beal have teamed up together in chasing distressed properties.

Icahn did not return a telephone call seeking comment. An official with Tepper's firm also did not respond to a request for a comment.

LightSquared sold the bank debt to raise money for the construction of its high-speed wireless network. Falcone's hedge fund has contributed roughly $3 billion to the company and it owns all but a tiny sliver of LightSquared's equity.

The sources familiar with the situation say Beal, Icahn and Tepper bought some of the $300 million in LightSquared bank debt sold last year by hedge fund Farallon Capital Management.

(Reporting By Matthew Goldstein; additional reporting by Svea Herbst-Bayliss and Sinead Carew; editing by Matthew Lewis)