March 9, 2015 / 4:06 PM / 5 years ago

UPDATE 2-LightSquared to set aside some cash for Ergen, lenders

(Adds details from Smith’s testimony, paragraphs 9-12)

By Nick Brown

NEW YORK, March 9 (Reuters) - A lawyer for LightSquared on Monday said the company will set aside $400 million to give certain bankruptcy lenders, including Dish Network Corp Chairman Charles Ergen, the option to take a portion of their repayment in cash instead of notes.

The bankrupt wireless venture, opening a week-long trial seeking a judge’s approval of its debt restructuring plan, is looking to end one of the most litigious bankruptcies of recent years.

LightSquared, owned by Phil Falcone’s Harbinger Capital Partners, was planning a massive wireless network when it was forced to file bankruptcy in May 2012, after the Federal Communications Commission revoked its spectrum license over potential GPS interference.

Since then, no fewer than seven restructuring proposals have failed amid creditor fights over the treatment of debt and the underlying value of LightSquared’s spectrum.

To end its bankruptcy, LightSquared must convince Judge Shelley Chapman, in Manhattan Bankruptcy Court, that its latest plan treats creditors fairly. The plan would let Harbinger retain some equity but cede operational control, transfer a chunk of equity to lenders Fortress Investment Group and Centerbridge Partners, and repay other lenders, including Ergen, via notes.

Company lawyer Matthew Barr on Monday said the company will offer lenders other than Centerbridge and Fortress the option to take some repayment from a cash pool of $400 million. Ergen’s share would be about $320 million.

Ergen, who is owed about $1 billion, has consistently opposed the plan. His lawyer, Rachel Strickland, voiced continued resistance on Monday despite the cash offer. Settlement discussions are expected to continue during the trial.

Ergen bought his share of debt through a personal investment vehicle, and was accused by LightSquared of trying to infiltrate its capital structure to effect a Dish takeover. He says LightSquared is unfairly treating his debt differently than that of other lenders.

LightSquared CEO Doug Smith testified on Monday to the plan’s fairness, with Ergen lawyers pressing him on the uncertainty surrounding whether the FCC will reinstate the company’s spectrum license.

Smith said he believes the FCC is waiting to see who will own LightSquared’s assets after bankruptcy, adding that the company has not given up on implementing its network.

“How we deploy and put the spectrum to use is still to be determined,” Smith said.

Separately, Barr said LightSquared will appoint former Verizon Chief Executive Ivan Seidenberg as its chairman after bankruptcy, and former FCC Chairman Reed Hundt as a board member. (Reporting by Nick Brown; Editing by Meredith Mazzilli and David Gregorio)

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