NEW YORK, July 14 After months of trying to push Dish Chairman Charles Ergen out of its capital structure, bankrupt wireless venture LightSquared on Monday proposed a turnaround plan that would make Ergen its primary lender after bankruptcy.
The surprise departure from earlier restructuring efforts was unveiled by LightSquared at a hearing in U.S. bankruptcy court in Manhattan. Ergen, whose $1 billion loan debt stake makes him LightSquared's largest creditor, would become the lender on a $1.3 billion post-bankruptcy loan facility, replacing JPMorgan Chase & Co, which had previously agreed to provide that money.
The deal achieves an unlikely peace between LightSquared and Ergen, two parties whose scorched-earth litigation strategies have made LightSquared's bankruptcy among the most litigious in recent memory.
The battle lines in the case have been redrawn, but they have not disappeared. Parties who favored previous versions of LightSquared's plan, which were less friendly to Ergen, are now crying foul.
Among them is Phil Falcone's Harbinger Capital Partners, LightSquared's equity owner. Calling the new deal a "stunning reversal" from previous strategies, Harbinger attorney David Friedman said at Monday's hearing his client needs to better "understand what is required of Harbinger under this plan."
LightSquared went bankrupt in 2012 after the Federal Communications Commission revoked its license to operate spectrum because of concerns about GPS interference. Ergen later acquired about $1 billion of LightSquared's senior loan debt, leading the company to accuse him in a lawsuit of trying to surreptitiously take it over.
Judge Shelley Chapman in May sided with LightSquared in the lawsuit but still rejected the company's plan to reorganize by pushing Ergen's debt behind that of other creditors, saying the plan went too far.
After failed mediation sessions, Ergen also opposed a second LightSquared restructuring proposal, one that would have subordinated some, but not all, of his debt. That plan involved the $1.3 billion in new loans from JPMorgan and another $1.4 billion in commitments from a group including JPMorgan, Cerberus Capital Management and Fortress Investment Group (FIG.N), which would have converted to most of LightSquared's equity.
Ergen vowed to litigate, and a second major trial in the case was scheduled for later this summer.
Monday's development signals a cease-fire between LightSquared and Ergen, but not everyone is happy. Friedman, Harbinger's lawyer, expressed concerns the plan could impede Harbinger's ability to pursue other legal claims, because of a condition that the company resolve recent lawsuits against Dish and the federal government.
And a separate lending group voiced doubts over whether the parties' commitments are solid enough to put the plan into effect quickly.
"We're going to be asked to fund (LightSquared) to get to that finish line and we're concerned about writing more checks and not have a high degree of certainty that we're going to finish this exercise," Tom Lauria, the lenders' lawyer, said.
LightSquared said it hopes to file the details of the plan next week, seek Judge Chapman's approval in August and put the plan into effect by February. (Reporting by Nick Brown; Editing by Steve Orlofsky)