* Falcone, creditors failed to reach agreement
* LightSquared future in doubt after FCC ruling
* Falcone: filing gives LightSquared breathing room
By Svea Herbst Bayliss, Sinead Carew and Jonathan Stemple
May 14 Hedge fund manager Philip Falcone's dream
of bringing another wireless network to the United States likely
came to an end on Monday, when LightSquared Inc, the ailing
telecommunications company he bankrolled, filed for bankruptcy
LightSquared and many affiliates, as widely expected, filed
for protection from creditors with the U.S. bankruptcy court in
Manhattan. Falcone, once one of the hedge fund industry's most
powerful figures, and LightSquared's creditors failed to reach
Still Falcone, who dramatically overhauled his portfolio in
the last two years by putting nearly all assets into
LightSquared, is not giving up on his dream of building a
network to compete with AT&T, Verizon and others. He put a
positive spin on the bankruptcy filing by saying it would give
the company much needed breathing room and protect it from
creditors who he said are looking for a quick profit.
The future of LightSquared, 96 percent-owned by Falcone's
Harbinger Capital Partners, has been in doubt since February
when the U.S. government effectively told the company to stop
building its network.
Falcone's dream rested largely on the U.S. government's
permission for LightSquared to build out the wireless network.
When tests showed that LightSquared's network would interfere
with global positioning systems used by the military and various
industries, the U.S. Federal Communications Commission said it
would revoke permission to build out a new high-speed wireless
ROOM TO BREATHE
"The filing is intended by LightSquared to give it the
additional runway it needs to resolve regulatory issues so it
can build the nation's first integrated satellite-terrestrial 4G
wireless network," Falcone wrote to investors in a letter seen
by Reuters. He did not mention the enormous losses his portfolio
sustained because of this bet.
In the first two months of 2012 Harbinger Capital Partners
lost 26.7 percent after having dropped 47 percent last year,
largely due to LightSquared writedowns.
One of the issues that creditors and Falcone haggled over
was what role he would have in the future, people familiar with
the matter said.
Creditors no longer wanted Falcone to be the public face of
LightSquared and they wanted to cut Harbinger's ownership stake
to 50 percent with bondholders getting the other half, people
familiar with the matter said.
At the same time LightSquared firmly blamed the everyone on
the other side including the GPS industry and the main lenders
for its current troubles.
Marc Montagner, LightSquared's chief financial officer, said
in a filing that the GPS industry, which balked when tests
showed the interference, "refused to compromise" and "sought to
convince regulatory agencies to strip LightSquared of its
ability to use its allocated spectrum for terrestrial purposes."
Meanwhile the biggest lenders, including hedge fund titan
David Tepper's Appaloosa Management, Capital Research and
Management Company, Fortress Investment Group, Knighthead
Capital Management and Redwood Capital Management, were seen by
industry analysts as having been especially flexible. They had
extended their deadline twice already even after LightSquared
had violated the terms of its debt. Activist investor Carl Icahn
had been part of the group until he sold out, likely making a
But by Monday it was clear that no last minute deal could be
worked out even after lengthy meetings.
In its filing with the court, Reston, Virginia-based
LightSquared said it has more than $1 billion of both assets and
liabilities, according to the bankruptcy petition.
Financial statements for LightSquared reviewed by Reuters
show that LightSquared has about $2 billion in outstanding debt.
According to the filing, some of LightSquared's creditors
include Boeing, which is owed $7.5 million, and
Alcatel-Lucent, which is owed $7.4 million.
Milbank, Tweed, Hadley & McCloy is serving as general
bankruptcy counsel to the company.
FALCONE'S HOPES AND DREAMS
For Falcone, who sank billions of dollars of his investors'
and his own money into LightSquared, the bankruptcy likely
spells the end of the trader's career as a professional
investor, industry analysts said on Monday.
"It moves him one step closer to having lost everything he's
invested in it," he said. "For him to get anything back he'll
have to come up with some deal that would deliver well in excess
of $2 billion of value for this asset," said Tim Farrar, an
independent industry analyst who has followed the situation
closely. "Without a spectrum swap or a strategic partner it's
very unlikely," he said.
Only five years ago, Falcone had been crowned as one of the
hedge fund industry's biggest stars thanks to a savvy bet
against the overheated housing market that helped increase his
Harbinger Capital Partners to about $26 billion in assets under
management. By earlier this year that had shrunk to roughly $4
When Falcone was hot, hundreds of endowments and funds of
funds plus wealthy individual investors flocked to his New
York-based hedge fund in hopes he would soon repeat the
triple-digit gains of 2007.
Now Falcone, a former Harvard College hockey star, is being
sued by at least one individual investor and other institutional
investors who have not been able to get their money out as he
locked down the portfolio to conserve cash. They acknowledge
they are embarrassed to be ensnared in what could become the
year's biggest hedge fund collapse.