October 7, 2010 / 6:03 PM / 9 years ago

Falcone's wireless bet comes with a steep price tag

* Falcone’s LightSquared loan has a 12 percent coupon

* The rate on the $850 million is at the high end

* Loan proceeds will pay bills to Nokia and Qualcomm

By Matthew Goldstein

NEW YORK, Oct 7 (Reuters) - Financing the construction of hedge fund billionaire Philip Falcone’s ambitious high-speed wireless broadband network is not coming cheap.

An $850 million loan package put together by UBS (UBS.N) for LightSquared, the wireless telecom company backed by Falcone’s $9 billion hedge fund Harbinger Capital Partners, boasts a sky-high yield.

The four-year term loan, which UBS has syndicated to a number of hedge funds, carries a coupon of about 12 percent, said sources familiar with the the deal. The 12 percent interest rate is nearly twice the average coupon being offered on other high yield loans brought to market this year, according to Thomson Reuters LPC.

One trader of distressed loans who did not want to be identified said a 12 percent rate ranks near the top of the charts. Telecom analyst Tim Farrar said the high yield on the LightSqaured loan “reflects some of the doubt investors” have about Falcone’s plans to bring a so called 4G high-speed Internet service to all corners of the United States by 2015.

The LightSquared deal has emerged as one of Falcone’s most daring trades yet. His two main investment funds, which are down about 13 percent this year, have roughly 40 percent of their net assets tied up in the venture.

Industry analysts said the $850 million loan package is a good start for LightSquared. But the company may need to raise at least another $6 billion to build out its wireless network, which will rely on space-based satellites and an array of land-based transmission towers.

Falcone declined to comment.

The loan, a portion of which UBS has retained itself, is secured by some of LightSquared’s assets. One of those assets is the value of the license that LightSquared received earlier this year from the Federal Communications Commission, which gives the company the right to operate and transmit voice and data in a portion of the broadcast spectrum.

The UBS loan package, which closed on Oct. 1, will help LightSquared, a Reston, Va.-based start-up venture, pay some of its upcoming bills and refinance earlier debt issued by a predecessor company called SkyTerra, said people familiar with the transaction.

By the end of the year, LightSquared hopes to launch the first of two satellites that will be critical components of the company’s mobile broadband network. The company on Thursday announced a deal with Nokia NOK1V.HE to make phones and other handsets for the network. LightSquared also said Qualcomm (QCOM.O) will provide the chips for those devices. [ID:nASA00SJC]

LightSquared also has an eight-year deal with Nokia Siemens Networks to provide the infrastructure and other equipment needed to build out the 4G network.

But some skeptics like Farrar, who has worked as a telecom and technology consultant for more than 14 years, said Falcone and LightSquared are in a race to catch up to Clearwire Corp, its nearest competitor in building a wireless 4G broadband network.

A year ago, Clearwire raised about $2.8 billion in financing in a debt offering that carried a similar 12 percent interest rate. Clearwire is further along in launching its network. In September, the company began offering some people in the New York City metropolitan area special deals to sign up for its new mobile Internet service.

“Investors are considering both Clearwire and LightSquared’s first lien debt as being primarily underwritten by the value of their spectrum assets, if the companies can’t make a success of the business,” said Farrar. “So the fact that Harbinger only has been able to raise $850 million in first lien debt indicates that investors believe there is significantly more risk.” (Reported by Matthew Goldstein. Editing by Robert MacMillan)

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