LightSquared bankruptcy exit plan puts Ergen in uncertain position

NEW YORK Sat Feb 15, 2014 5:44pm EST

NEW YORK Feb 15 (Reuters) - Bankrupt wireless company LightSquared Inc has proposed a new restructuring plan that would remove certain regulatory hurdles to its exit from Chapter 11 while potentially subordinating the bankruptcy claim held by its largest creditor, an entity run by Dish Network Corp Chairman Charles Ergen.

In court papers filed late on Friday night, LightSquared outlined a restructuring plan fueled by $2.35 billion in new financing from Fortress Investment Group and others, which would not be contingent on gaining regulatory approval for a planned wireless network, as was its previous plan.

It would allow its current equity owner, Phil Falcone's Harbinger Capital Partners, to retain a stake in the company post-bankruptcy, along with Fortress and Melody Capital, also a financier of the new loans.

But Ergen's investment vehicle, despite being the largest holder of LightSquared's loan debt, would be paid out in the form of new debt, rather than cash, like other lenders. The new debt may or may not be secured by collateral, depending on whether Ergen votes in favor of the plan.

LightSquared and Ergen have been at odds since early in the bankruptcy. In a separate and still pending lawsuit, LightSquared has sued Ergen, claiming he surreptitiously bought up huge chunks of the company's debt in an effort to set the stage for a takeover by Dish. Ergen has maintained that the purchases were personal, and not on Dish's behalf.

LightSquared declared bankruptcy in 2012, after the Federal Communications Commission revoked its license to build a massive wireless network over concerns that it could interfere with GPS systems. Falcone has said he believes the company can regain FCC approval sometime this year.

COERCING ERGEN

While the restructuring plan contemplates paying most secured lenders in cash, the company would treat Ergen's investment vehicle differently. In exchange for his claims, Ergen would get a $1.1 billion note.

If Ergen votes in favor of the plan, the note would be secured by collateral, and the company would provide Ergen with releases from certain legal claims. If he turns down the offer, the size of Ergen's note would be reduced and could be unsecured, and the legal releases would vanish.

The plan and its terms, however, are subject to court approval, with a hearing set for March 17 in U.S. Bankruptcy Court in Manhattan before Judge Shelley Chapman. Potentially accelerating Ergen's decision is LightSquared's request for lenders to vote on the plan by March 3 and any objections to be lodged by March 10. Whether that timetable is appropriate will be taken up at a separate hearing before Judge Chapman on Feb. 24.

NEW FINANCING

LightSquared has been trying to create a bankruptcy exit plan that would bridge disagreements between various fractious lender and creditor constituencies, some of which had proposed their own plans for how to restructure the company.

LightSquared plans to raise $1.65 billion in bankruptcy loans, which would consist of $1.35 billion of new money from Fortress, Melody and JPMorgan Chase & Co. The remaining $300 million would come from existing LightSquared lenders rolling their pre-bankruptcy claims into the new loan.

The company said it later plans to raise another $1 billion of senior loans to fund its exit from Chapter 11.

LightSquared's plan also includes an updated valuation from Moelis, the company's financial adviser, which provides a range of $6.2 billion and $9.1 billion for its assets.

The case is In Re LightSquared Inc et al., U.S. Bankruptcy Court, Southern District of New York, No. 12-12080

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