| NEW YORK, March 31
NEW YORK, March 31 Investor Phil Falcone, whose
Harbinger Capital Partners owns bankrupt wireless company
LightSquared, on Monday said he always intended to cut the debt
claims of LightSquared's largest creditor, Dish Network Corp
Chairman Charlie Ergen.
"I don't think Charlie should have been in the capital
structure," Falcone said during testimony in U.S. Bankruptcy
Court in Manhattan, in the third week of hearings in which
LightSquared is seeking court approval of its plan to exit
bankruptcy and repay creditors.
The plan would pay most lenders in cash while paying Ergen
in the form of a long-term note, terms to which Ergen has
Under intense questioning from Ergen's attorneys, Falcone
acknowledged that he believed subordinating Ergen's claims would
allow Harbinger to retain equity in a post-bankruptcy
Treating Ergen's $1.1 billion claim differently from other
creditors' claims would decrease the amount of new equity
LightSquared would need to raise to a fund a bankruptcy exit,
preserving more for Harbinger, according to Falcone. The plan
would retain a roughly 30 percent equity stake for Harbinger.
LightSquared filed for Chapter 11 in 2012, when the Federal
Communications Commission revoked its license to build a massive
planned wireless network over concerns it could interfere with
GPS systems. Ergen later acquired a big enough chunk of the
company's senior loan that he could essentially block any
restructuring plan he disagreed with.
LightSquared and Harbinger believe they can subordinate
Ergen's claim because, according to them, he acquired his stake
illegally, violating a credit agreement barring competitors like
Dish from holding LightSquared debt.
In a separate and still-pending lawsuit, LightSquared
alleges Ergen was acting for Dish when he bought the debt, with
an eye toward setting the stage for a Dish takeover. Ergen has
said from the outset the purchases were solely for his personal
A Dish unit did make a $2.2 billion offer for LightSquared's
valuable spectrum, but dropped the bid in January.
Monday marked the end of witness testimony in weeks of
hearings, and it is now up to Judge Shelley Chapman to assess
Ergen's motivations for accumulating debt. Whether Chapman deems
Ergen to have acted improperly will be the key factor in whether
she approves the bankruptcy exit plan.
If Chapman finds that Ergen did not act improperly,
LightSquared could find itself in a tight negotiating spot, as
Falcone conceded that no alternative restructuring plan is on
the table right now.
Chapman's decision is expected to take several weeks, with
LightSquared and Ergen planning to submit post-trial court
briefs by May 2. But time is of the essence for LightSquared,
which could run out of money by April 15, when its $33 million
bankruptcy loan expires. LightSquared plans to address that
issue in the coming days, its lawyer said on Monday.
Falcone said Harbinger initially wanted to disallow Ergen's
claims entirely. But to facilitate a restructuring, he agreed to
support a deal premised on equity contributions from Fortress
Investment Group and Melody Capital that would subordinate the
claims behind those of other lenders.
An independent committee overseeing the restructuring has
said it supports the move.
(Reporting by Billy Cheung; Writing by Nick Brown; Editing by