UPDATE 3-Judge backs ION Media's bankruptcy exit plan

* ION Media Networks rejects last minute creditor offer

* Judge rules against Cyrus over FCC licenses (Adds response from Cyrus)

By Emily Chasan and Caroline Humer

NEW YORK, Nov 12 (Reuters) - A U.S. judge on Thursday said he would approve a reorganization plan from bankrupt U.S. television station owner ION Media Networks Inc IION.PK, rejecting a creditor's last-minute $250 million offer for the control of the company.

At a hearing in the U.S. bankruptcy court in Manhattan, Judge James Peck rejected arguments from creditor Cyrus Capital Partners that ION's reorganization plan could not be approved because it was based on invalid liens to ION's broadcast licenses.

Judge Peck said he would approve ION's plan, which has the support of its first-lien lenders, and would allow the company to exit bankruptcy protection as a stand-alone entity with a lighter debt load.

ION, the owner and operator of the ION Television broadcast network, filed for bankruptcy protection in May, just hours before reaching an accord with a majority of its senior first-lien debtholders to convert debt to equity in a prenegotiated financial restructuring.

On Monday, Cyrus had offered $250 million to refinance ION's debtor-in-possession bankruptcy loan in exchange for a 62.5 percent controlling stake in the reorganized company.

ION's board of directors rejected that offer earlier on Thursday.

The company's bankruptcy attorneys at Kirkland & Ellis said in a letter to Cyrus' lawyers that the board felt the Cyrus plan would require the company to resolicit votes from creditors and resubmit applications to the FCC, which could delay the company's emergence from bankruptcy and increase the risk of litigation with its first-lien lenders.

Despite the Cyrus plan offering more funding to the company, ION's attorneys said it had all the funding it needed to fund its reorganization plan at this time.

Cyrus, which typically invests in distressed assets, has been in litigation with ION over the reorganization plan, which it claims is invalid because it is based on an illegal lien to ION's Federal Communications Commission licenses for its 50-some television stations.

The licenses represent a majority of the company's value, and Cyrus says a lien the first-lien lenders were granted on the FCC licenses is invalid because the FCC does not permit liens on such licenses.

Judge Peck rejected that argument on Thursday and ruled that the FCC licenses do constitute "purported capital" for the company and said Cyrus didn't have the right to object to the company's plan.

"Cyrus, despite a lack of standing, acts as if it has the right to be heard. It does not," Peck said at the court hearing.

Peck, who said he will issue a formal written ruling in the next 10 days, said that an intercreditor agreement between ION's first-lien and second-lien lenders also prevented Cyrus from objecting.

Cyrus had offered to let the company out of the litigation over the FCC licenses as part of its offer.

"We're dissatisfied that the judge didn't provide what the creditors' committee asked for in today's hearing: 'a few more days' to consider a $250 million offer - one that injects $100 million in cash above the existing plan," Steve Freidheim, managing partner of Cyrus Capital, said in an emailed statement.

Freidheim said the unsecured creditors and other stakeholders would have benefited from the extra cash.

"Cyrus Capital will carefully read the judge's written ruling and decide how to proceed from there," Freidheim said.

The case is ION Media Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-13168. (Reporting by Emily Chasan and Caroline Humer, additional reporting by Ajay Kamalakaran in Bangalore; editing by Gerald E. McCormick, Tim Dobbyn and Muralikumar Anantharaman)