LightSquared creditors unite against Phil Falcone

Tue Apr 24, 2012 4:35pm EDT

* LightSquared debt holders hire White & Case lawyer

* Falcone and creditors face an April 30 covenant deadline

By Matthew Goldstein

NEW YORK, April 24 (Reuters) - Hedge fund manager Philip Falcone will face a united front when negotiating with key investors that own bank debt sold by LightSquared, the money-losing wireless telecom company controlled by his fund.

A number of LightSquared debt holders have joined together to retain high-powered bankruptcy attorney Thomas Lauria, who heads White & Case's global restructuring group, said two people familiar with the situation.

The sources, who did not want to be identified, said the creditors' group includes billionaire activist investor Carl Icahn, hedge fund manager David Tepper and investment firms Fortress Investment Group and Capital Research and Management Company.

Institutional investors own some of the $1.6 billion in bank debt that LightSquared sold to raise money for its planned wireless telecommunications network. LightSquared is facing an April 30 deadline to renegotiate the terms of the loan in order to head off a potential default that would spur a bankruptcy filing.

Lauria and his clients could not be reached for comment. Falcone declined to comment.

Falcone, whose Harbinger Capital Partners owns roughly a 96 percent equity stake in LightSquared, has said he might file a voluntary bankruptcy for the telecom. Falcone has said a bankruptcy would not necessarily wipe out his hedge fund's considerable equity stake in LightSquared because its operating spectrum licenses retain value.

The two sources familiar with Lauria's hiring said it was unclear whether the investors and Falcone would be able to reach a deal to avert a default.

The debt holders, who are believed to own roughly half of the $1.6 billion of LightSquared bank debt, are interested in reducing Falcone's and Harbinger's equity stake in the company, sources said.

LightSquared lost $532 million last year, according to a recently completed financial statement for the company.

The company's balance sheet says it has about $282 million in cash and short-term investments. But the financial statement al so s ays LightSquared has $1.85 billion in liabilities, including the debt held by the investors.

The financial statement lists about $453 million in debt payments the company is obligated to make by the end o f 2012, unless it reaches an agreement with its creditors.

The statement adds there is "substantial doubt about our ability to continue as a going concern."

LightSquared's fate has become an important concern for investors in Falcone's $3.8 billion hedge fund, which has sunk roughly 60 percent of its money into the telecom startup. The success or failure of LightSquared will go a long way in determining Falcone's legacy as a money manager.

Not too long ago Falcone was the toast of hedge fund row after his fund soared to $26 billion in assets after making a wildly successful bet on the collapse of the U.S. housing market.

The talk of a potential bankruptcy began to swirl in February after the Federal Communications Commission withdrew a conditional waiver that would have allowed LightSquared to begin building out its mobile network. Without the waiver, LightSquared is severely limited in moving forward with its plans.

The FCC revoked the waiver after tests revealed that LightSquared's planned network would interfere with crucial satellite systems used for aviation safety and by the U.S. Department of Defense. The FCC action also came after bitter protests from a trade group representing companies that rely on Global Positioning Systems, which operate in a spectrum close to LightSquared.

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