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By Erik Larson
Nov. 4— LightSquared Inc.’s two-year-old bankruptcy case has become a tale of shifting fortunes in court for two billionaires competing for control of the wireless broadband company. Today was no different.
Creditors including Dish Network Corp.’s Charles Ergen reached a deal on a proposed Chapter 11 plan that would give the investor 60 percent of the equity in a reorganized LightSquared, wresting control from its current owner, Philip Falcone, and keeping the company in one piece.
Minutes after the deal was announced at a hearing today in Manhattan, David Friedman, a lawyer for Falcone's Harbinger Capital Partners LLC, told U.S. Bankruptcy Judge Shelley Chapman the proposal “made a mockery” of the court process, because Ergen had previously testified he had no interest in controlling LightSquared.
“Giving him the keys to the company is not without controversy, not without significant issues for us,” Friedman said of Ergen. Any move to approve the plan would be contested, he said.
LightSquared, based in Reston, Virginia, sought bankruptcy protection in 2012 after the Federal Communications Commission blocked its service, saying it might interfere with global positioning system navigation equipment. An Ergen fund, SP Special Opportunities Inc., invested $1 billion in LightSquared debt, placing him at odds with Falcone in their bids to revamp the company and leading to a war of words in court papers over the intentions of the two men.
Falcone's earlier plan to split LightSquared in two and maintain control through Harbinger, his hedge fund and the current controlling shareholder, fell apart last week after Chapman rejected his bid to nullify a $2.4 billion claim by a group of competing lenders. His plan hinged on sidestepping the debt.
If the new proposal were approved, Ergen would be underpaying for control of the company because his equity would be worth more than $1 billion, Friedman told Chapman.
The new deal, which also gives equity to lender JPMorgan Chase & Co., was the result of all-day mediation on Oct. 31 with a federal judge in Manhattan, Chapman said.
LightSquared lawyer Joshua Sussberg told Chapman a formal plan will be filed with the court next week, and that holding a confirmation hearing on the proposal by Dec. 15 would ensure the financial details of the deal didn't shift too much. Chapman urged the parties to consider a date in January to avoid rushing lawyers or conflicting with December holidays.
Falcone's plan is just the latest that failed to win court approval. The company previously narrowed three reorganization plans down to one, only to see it rejected earlier this year.
Ergen had previously proposed bidding for LightSquared's airwaves as part of a reorganization, then dropped out at the last minute. The company accused him of secretly snapping up its debt to hijack the reorganization.
LightSquared accused Ergen of trying to destroy the company when he bought its debt, saying evidence showed that he intended to benefit Dish. Ergen's fund argued Falcone sought to enrich himself through his proposed plans at the expense of other investors.
Harbinger sought to break off LightSquared Inc. from LightSquared LP and get around a so-called guaranty claim by LightSquared LP's creditors. Chapman ruled Oct. 30 that Harbinger can't expunge the claims totaling $2.4 billion. The “Inc.” and “LP” divisions have different lenders and own different rights to wireless spectrum, prompting some of the disputes that have played out in New York.
The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Erik Larson in New York at +1-212-617-2086 or email@example.com To contact the editors responsible for this story: Andrew Dunn at +1-212-617-2529 or firstname.lastname@example.org
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