Dish chairman says LightSquared debt a "great investment"

NEW YORK Mon Jan 13, 2014 6:18pm EST

NEW YORK Jan 13 (Reuters) - Dish Network Corp Chairman Charles Ergen said on Monday he had bought LightSquared's secured debt because it was a "great investment," and said he did so on his own behalf and not for Dish.

The question of why Ergen bought LightSquared's debt is central to a trial in the U.S. Bankruptcy Court in Manhattan in which Ergen is accused of doing so to help Dish in a plan to acquire LightSquared.

LightSquared and its owner, Harbinger Capital Partners, have said that Ergen created an investment vehicle to buy LightSquared debt without revealing the identity of the buyer. The move was done to get around a credit agreement that barred debt purchases by LightSquared competitors, like Dish, LightSquared and Harbinger alleged in a lawsuit.

Testifying in court on Monday, Ergen acknowledged that, from mid-2012 through last year, he accrued enough LightSquared debt to influence the company's restructuring. But he insisted it was not done improperly, or as part of Dish's plan to acquire LightSquared.

"I loved the investment," said Ergen, who said he spent about $700 million of his own money to acquire about $850 million worth of debt. "I believed the value of that investment had gone up."

LightSquared went bankrupt in May of 2012, when the Federal Communications Commission blocked its efforts to build a wireless network amid fears it could interfere with GPS devices.

Dish made a $2.2 billion bid for LightSquared last year, but withdrew the offer on Thursday.

Harbinger officials are pushing a competing restructuring plan for LightSquared under which the company would receive $2.75 billion in fresh loans and at least $1.25 billion in equity investment from Fortress Investment Group and others.

Ergen on Monday testified that his desire to conceal his identity was to keep the price of the debt low, and not to circumvent any rules.

"If I were associated with the purchase of anything, it was going to raise the price, so I didn't want to raise the price of something I was interested in investing in," Ergen said.

During his testimony, LightSquared lawyers used Ergen's past communications to show that Dish had interest in LightSquared's assets.

According to a transcript of an August earnings call, read in court, Ergen said he found LightSquared "interesting" because its spectrum "could fit with the spectrum we have in the long-term," and is "very similar" to spectrum Dish acquired from other bankrupt entities.

And, according to emails presented during cross-examination, Ergen in one instance directed a party from whom he was buying LightSquared debt to vote against giving LightSquared an extra week to negotiate a restructuring plan with creditors.

That is a key revelation because Ergen has denied that delays in the closing of his trades were done on purpose to hinder LightSquared's negotiations with creditors.

Asked about the vote during cross-examination, Ergen said he was visiting his daughter at college at the time, wasn't focused on the LightSquared matter and didn't have details about the terms and conditions of the proposed extension with him.

"Ergen's testimony is giving a glimpse into more of his strategic thinking in recent years," Walter Piecyk, a BTIG analyst, told Reuters.

Dish shares closed down $1.26, or 2.2 percent, at $55.95 on the Nasdaq on Monday.

Lawyers for LightSquared and Harbinger last week alleged that Ergen used money from his daughter's trust fund to buy the debt, but Ergen testified that he is the sole beneficiary of the so-called Lindsey Revocable Trust, and said it is named for a Colorado mountain that he once hiked.

Ergen did say, however, that his wife, who is a trustee, was not consulted before he removed the money to invest in LightSquared.

Last year, when Ergen finally revealed the investment to his wife, he said she was surprised.

"She said, 'Did you think you might want to tell me about that?'" Ergen said.

Phil Facone of Harbinger Capital Partners is tentatively scheduled to take the stand on Wednesday.