LightSquared creditors eye equity, Falcone may cut role

NEW YORK Mon Apr 30, 2012 5:29pm EDT

Hedge fund manager Philip Falcone, senior managing director of Harbinger Capital Partners, testifies before a US House Oversight and Government Reform Committee hearing on the regulation of hedge funds, on Capitol Hill in Washington, November 13, 2008. REUTERS/Jonathan Ernst

Hedge fund manager Philip Falcone, senior managing director of Harbinger Capital Partners, testifies before a US House Oversight and Government Reform Committee hearing on the regulation of hedge funds, on Capitol Hill in Washington, November 13, 2008.

Credit: Reuters/Jonathan Ernst

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NEW YORK (Reuters) - LightSquared creditors are pushing for Philip Falcone's Harbinger Capital Partners to reduce its ownership stake in the money-losing telecommunications start-up as they extend talks to avoid declaring a loan default that would result in bankruptcy.

Falcone has told creditors he could reduce his own role in LightSquared if they hold off on declaring a loan default. On Sunday, Falcone and LightSquared creditors agreed to delay a default notice on a $1.6 billion loan for at least a week as they continue their talks.

In the negotiations, the creditors are exploring whether Harbinger Capital Partners will give them an equity stake in LightSquared, said several sources familiar with the talks. Harbinger currently has a 96 percent ownership in LightSquared.

"They're looking for a reduced role for Phil and an equity stake," a person familiar with the talks said on Monday.

The person cautioned that talks were fluid and "nothing has been agreed to" yet.

If Falcone does not agree to reduce Harbinger's equity stake and give up some ownership and control to the creditors, a bankruptcy filing would still be a possibility, a creditor representative familiar with the talks said.

On the other hand, the creditors could agree to an extension of 18 months to 24 months if both sides reach a deal by next Monday, the deadline for the current round of talks.

It was not immediately clear just how much of an equity stake the hedge fund creditors are pushing Falcone to relinquish. Representatives for the creditors said that not all the hedge funds are in agreement on that point.

Tim Farrar, an independent telecom consultant who is familiar with LightSquared, said he would expect the creditors to demand at least a majority equity so they could assure control of the company going forward.

In early April, Falcone said a bankruptcy would not necessarily wipe out the equity holders of LightSquared because the wireless spectrum it owns should retain some value.

A Harbinger spokesman declined to comment. Falcone became a member of the LightSquared board in late February after LightSquared Chief Executive Sanjiv Ahuja was pushed aside.

This all happened about two weeks after the U.S. Federal Communications Commission said it would revoke the company's permission to build a high-speed wireless network. The FCC's decision threw LightSquared's future into doubt because it would need to build its network in order to generate revenue.

A person close to the $3.8 billion hedge fund said that Falcone had only planned to stay on the LightSquared board on an interim basis and never intended to remain.

In the current negotiations with creditors, Falcone offered to reduce his role, but has not made a final decision, a person familiar with the talks said.

The holders of LightSquared's debt include billionaire investor Carl Icahn, hedge fund manager David Tepper and hedge funds including Fortress Investment Group (FIG.N), Knighthead Capital Management, Redwood Capital Management and investment firm Capital Research and Management Co. Hedge fund Solus Alternative Asset Management is an owner of some of LightSquared's convertible debt.

(Additional reporting by Katya Wachtel; editing by Jennifer Ablan and Andre Grenon)

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