* Falcone says has a plan, offers no details
* Analysts, some investors, see options dwindling
* LightSquared owes Inmarsat $56 mln by Saturday-sources
* LightSquared hired Moelis for restructuring advice-sources
By Sinead Carew and Svea Herbst-Bayliss
Feb 15 Hedge fund manager Philip Falcone
is ruling out a bankruptcy filing for his telecom startup
LightSquared Inc even as sources familiar with the matter said
the company was seeking restructuring advice.
"It is clearly not on our table," Falcone said in an email
on Wednesday when asked if LightSquared was considering a
bankruptcy filing after communications regulators said they
planned to revoke its approval for a national wireless network.
Falcone, for whom LightSquared is the biggest investment of
his Harbinger Capital Partners fund, said there was a plan for
dealing with the Federal Communications Commission's effort to
withdraw permission for a land-based network.
"There are other ways around this," he wrote in a second
email, without offering any details.
LightSquared has already hired investment bank Moelis & Co
as a restructuring advisor, according to two people familiar
with the matter. Moelis declined comment and LightSquared did
not respond to a request for comment.
The company is due to make a $56 million payment to its
satellite partner Inmarsat by this Saturday, according
to another person close to the situation and one of the sources
who knew of the Moelis hiring.
LightSquared did not respond to request for comments about
the payment and Inmarsat declined comment.
Industry analyst Tim Farrar said investors had told him they
were concerned about a $56 million payment due this weekend.
"Investors don't want to see such a large sum of money being
paid out given the current situation," said Farrar, principal at
TMF Associates. "They would prefer LightSquared to file for
bankruptcy before that payment is made."
LightSquared said the FCC's action had harmed it and the
public by preventing construction of a network vital to U.S.
Industry analysts and some LightSquared investors say the
telecom startup is running short of options with cash draining
away and little chance of getting the FCC to change its mind.
They also say it could be hard to find a buyer for LightSquared.
Several suggested that a bankruptcy filing, while perhaps not
imminent, is the likely outcome.
In a financial filing last year, LightSquared said it could
run out of money by the middle of this year.
"A bankruptcy Chapter 11 filing seems inevitable," said a
person with one of the hedge funds that owns some of
LightSquared's more than $1 billion in outstanding debt. The
person declined to be named because the situation is still fluid
Farrar said investors would have more leverage to press for
a bankruptcy filing after the FCC makes a final ruling. The
agency has set a March 1 deadline for public comment.
The FCC announced its proposed decision late on Tuesday,
minutes after the National Telecommunications and Information
Administration said LightSquared's network would interfere with
the Global Positioning System, vital to the military and with
civilian uses ranging from airline navigation to irrigation.
Many telecommunications analysts have said it will be
difficult for the financially-strapped company to either raise
additional financing or ever become profitable with just the
satellite-based portion of its network.
Its plan had been to tap into the massive demand for data on
devices like smartphones and tablet computers.
"We remain committed to finding a solution and believe that
if all the parties have that same level of commitment, a
solution can be found," LightSquared Chief Executive Sanjiv
Ahuja said in a statement without tipping the company's next
The fate of LightSquared also is critical investors in
Falcone's hedge fund, which once controlled $26 billion in
assets but is now down to about $4 billion. A little more than
half of Harbinger's money is tied-up in LightSquared and the
hedge fund is the company's single largest equity investor.
Last year, Harbinger, a fund known for its volatile returns
with years of big losses often following year of big gains, gave
up 47 percent of its value in large part because of a sharp
markdown on the value of the LightSquared investment.
Falcone, an expert in distressed investing whose well-timed
bet against the overheated housing market earned him a big
following in the $2 trillion hedge fund industry, still has a
prominent roster of investors. The list is said to include hedge
fund legend George Soros, who declined to comment on the
Falcone's current troubles.
For now, LightSquared's main business partner, Sprint Nextel
, is sticking to its plan to give the company until the
middle of next month to try and come up with a solution.
Sprint and LightSquared already decided at the end of last
year to try and save money by shelving work on the network until
the situation was clearer.
If Sprint scuttles the deal it could mean money coming back
to LightSquared. "There is $65 million that would be returned to
LightSquared to reflect work that was paid for (but) not carried
out." Sprint spokesman Bill White said.
LightSquared has argued that its network would help ease a
national wireless capacity shortage, in line with FCC goals to
devote more airwaves to mobile services.
But the GPS interference and the FCC's subsequent decision
may pose too great an obstacle to overcome, analysts said.
"While we could not commit to saying that it is the 'end of
the road' for LightSquared, we believe it will be an extremely
tough slog for the company to show value in the spectrum it
holds," Wells Fargo analyst Jennifer Fritzsche wrote in a
OPTIONS AND ALTERNATIVES
One route would be for LightSquared to file a lawsuit
against the FCC, but it would likely have to wait until the
comment period is over and such a case could take months.
"The odds are against (LightSquared) in being able to
persuade the FCC that it is wrong," said Andrew Lipman, a
partner who heads law firm Bingham McCutchen's
Another way to deal with the GPS issues would be to arrange
a spectrum swap with another carrier or company, a person close
to LightSquared who is not authorized to speak publicly said.
A sale of LightSquared might also be possibility, but it
might be tough to find a buyer.
"Right now (LightSquared is) in a world of hurt and the
thing is it is toxic enough that no one wants to take it,"
said one telecommunications mergers and acquisitions expert who
could not speak about the matter publicly.
This person added that companies like AT&T and Verizon
have been interested in snapping up spectrum, but said
buying LightSquared would not be a desirable way to do so,
considering the complications around it.
The value of LightSquared's spectrum declines significantly
if it cannot be used for cellular services, analysts have said.
For Falcone, the regulatory set-back is the latest in a
string of problems dogging the 49-year old former Harvard hockey
star who grew up in rural Minnesota but now lives on Manhattan's
Upper East Side in a townhouse once owned by Penthouse
publisher Bob Guccione.
The U.S. Securities and Exchange Commission recently warned
Falcone and some of his key lieutentants they face questions
over whether they might have engaged in improper trading.
Falcone has also faced investor anger over having failed to tell
them that he took a loan from the fund to pay his personal taxes
at a time they could not get their money out.