| NEW YORK, July 10
NEW YORK, July 10 Bankrupt wireless
communications firm Lightsquared Inc plans to go to trial with
its lenders over whether Dish Network chairman Charles
Ergen's acquisition of big chunks of its loan debt violated an
agreement pertaining to how LightSquared can restructure.
The trial, announced on Wednesday by LightSquared and its
lenders after the sides said they could not resolve the dispute
consensually, escalates a battle between Ergen and Phil Falcone,
head of LightSquared owner Harbinger Capital, over control of
The dispute centers on a February agreement between
LightSquared and an informal committee of some of its lenders
governing certain aspects of LightSquared's restructuring. Key
provisions of the deal have been kept private by the parties.
According to court papers filed in the U.S. Bankruptcy Court
in Manhattan, the deal hinged on the lender committee being
LightSquared's largest creditor constituency, which ceased to be
the case once Ergen began buying up large chunks of the debt,
thus voiding the deal, LightSquared has argued.
Ergen has countered that no breach occurred because he
eventually joined the committee.
A trial on the issue is tentatively set for August after
sides could not resolve the matter consensually, the parties
said on Wednesday in the Manhattan bankruptcy court.
Because portions of the deal are redacted, it is unclear
exactly how a potential breach would affect LightSquared's
bankruptcy. One effect it would have, according to the terms of
the deal, would be to allow LightSquared to raise additional
financing at its operating company that could rank ahead of
claims held by Ergen.
LightSquared is already in the process of trying to raise
financing that would allow it to exit bankruptcy on its own, but
an Ergen-controlled vehicle has offered $2 billion in cash to
buy its assets.
Falcone and Ergen each covet the valuable wireless spectrum
owned by LightSquared.
According to court filings, Ergen began buying LightSquared
operating company loans in April 2012 at close to 50 cents on
the dollar, a month before the company filed for bankruptcy, and
held $356 million of loans at the end of last year.
Since the beginning of this year, Ergen has acquired another
$657 million of loans, making him the largest single lender to
the company. A number of the loan trades took several months to
settle, leading to uncertainty over how much of the loans the
original lending group actually held over the last several
According to Reuters' calculations based on the market value
of the loans, Ergen's loan investments have so far cost $858
The February agreement gives LightSquared the exclusive
right to propose a bankruptcy exit plan through July 15, after
which creditors like Ergen can begin pushing competing plans. In
that scenario, Ergen's $2 billion sale offer would not
necessarily need Falcone's cooperation if it had the backing of
a majority of other creditors.
Even during its exclusivity period, LightSquared must
achieve at least some cooperation with creditors, because any
plan put forth by LightSquared would either need to be backed by
the majority of its lenders or fully repay those lenders.
So far, the relationship has been lukewarm, as both sides
have levied attacks in court papers and tension has built.
Ergen's purchase offer, now weeks old, remains on the table,
while LightSquared continues to work with Jefferies in hopes of
raising financing for an independent exit.