(Adds background on Chapman's ruling)
By Nick Brown
NEW YORK May 8 A U.S. bankruptcy judge ordered
LightSquared and its chief creditor, satellite owner Charles
Ergen, to discuss a settlement after she refused to approve the
wireless provider's plan to exit its two-year bankruptcy.
Chapman spent several hours on Thursday in her Manhattan
courtroom reading a lengthy opinion that capped weeks of
hearings aimed at resolving a bitter dispute between Ergen and
LightSquared founder Phil Falcone over the company's
LightSquared premised its plan to exit Chapter 11 bankruptcy
on subordinating the $1 billion it owes to Ergen, the chairman
of Dish Network Corp to the claims of other creditors.
Chapman found his debt should be subordinated to remedy
Ergen's underhanded dealings, but she also found LightSquared
was not treating him fairly. The ruling essentially hit both
sides, and she ordered them to begin talking with lowered
expectations or she would order mediation by her colleague,
Judge Robert Drain.
"You have two weeks," Chapman said. "If you come up with a
deal, both with respect to amount of equitable subordination and
a plan, no Judge Drain. If you don't, Judge Drain."
THE FIGHT CONTINUES
LightSquared's bankruptcy has devolved into a long and
contentious fight between majority owner Falcone's Harbinger
Capital Parnters, and Ergen. Chapman's ruling assures the case
will go on at least a little longer.
LightSquared went bankrupt in 2012 when the Federal
Communications Commission revoked its license to build a massive
wireless network, citing fears of interference with GPS systems.
Ergen later bought up enough of the company's senior loan
debt to own a controlling stake among the lenders, essentially
giving him veto power over any restructuring he did not favor.
Harbinger and LightSquared accused him of concealing his
identity while buying the debt with an eye toward a takeover.
Ergen insisted the purchases were on his own behalf, and that
Harbinger's real motive in the lawsuit was to preserve its
ownership in LightSquared.
Chapman said she agreed that Ergen's actions were "no doubt"
made on Dish's behalf, citing a "troubling pattern of
non-credible testimony" by Ergen and those who helped him make
his investments. Subordinating a piece of his debt was
"necessary and appropriate."
But LightSquared's current plan, which would pay him in the
form of a seven-year note while preserving an equity stake for
Harbinger, is not valid, Chapman ruled. Secured claims, even
when subordinated, must have assurance they will be paid back,
and with no guarantee that the FCC will ever license
LightSquared's operations, its proposal was too speculative,
The order puts Falcone and Harbinger in difficult positions.
The company must come up with a way to pay Ergen, if not in full
than more robustly than it proposed. That could ultimately cost
Harbinger control of LightSquared.
"You've now been given a lot of guidance about what's gonna
fly with me and what's not," Chapman added.
(Reporting by Nick Brown in New York; Editing by David
Gregorio, Richard Chang and Andre Grenon)