By Joseph Checkler
NEW YORK-- Dish Network Corp. Chairman Charles Ergen on
Wednesday said he fears he won't be paid in full for his claims in
the reorganization of LightSquared, Philip Falcone's wireless
venture seeking approval of its Chapter 11 restructuring plan.
Mr. Ergen, LightSquared's largest secured lender, opposes the
reorganization proposal and has become a central figure in the
case, especially since Dish abandoned a $2.2 billion bid for
LightSquared's assets earlier this year. LightSquared's newest
proposal would repay other holders of LightSquared's bank debt in
full, in cash, while Mr. Ergen's $850 million in the same debt
would be repaid over seven years, in a note rather than in
cash.
A lawyer for a group of lenders representing the other bank
debtholders on Wednesday questioned Mr. Ergen's motives just before
a scheduled December auction of LightSquared's wireless spectrum
assets. The auction was canceled, as no competing bids to Dish's
offer emerged. Dish abandoned its bid soon after, citing a
"technical" issue that made the spectrum less valuable to the
company, Mr. Ergen said.
LightSquared, which never supported Dish's bid and sought other
buyers all along, then proposed its latest restructuring proposal.
Now, Mr. Ergen fears that the $2.65 billion restructuring plan
overvalues the company and that he won't be repaid in full when the
seven years is up.
"I think the value is severely reduced," Mr. Ergen said. He
added, "The collateral does not cover my investment." Mr. Ergen
said that as recently as last July, he estimated LightSquared's
spectrum could some day be worth more than $7 billion if it was
owned by Dish.
The lenders' lawyer, White & Case LLP's Glenn Kurtz,
repeatedly pointed to perceived inconsistencies between Mr. Ergen's
deposition and Wednesday's testimony. Often, Mr. Ergen tried to
explain the differences but Mr. Kurtz deplored him to answer "yes"
or "no." Judge Shelley C. Chapman twice asked Mr. Kurtz to "turn it
down a notch."
As part of getting its restructuring proposal approved,
LightSquared and its major creditors are trying to prove that Mr.
Ergen only bought the company's debt as part of a scheme to acquire
a "blocking position" that would ease LightSquared into the hands
of Dish. If they win, Mr. Ergen's debt holdings could be disallowed
or placed below other creditors. A concurrent lawsuit over Mr.
Ergen's purchases of the debt accuses him of improperly buying it
on behalf of Dish, a LightSquared competitor prohibited from buying
it. Mr. Ergen says he bought the debt as a personal investment.
Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan
closed portions of the hearing to the public, citing the
"technical" issue that Dish says forced it not to pursue
LightSquared. It was the fifth day of testimony on the plan. Other
witnesses, called by LightSquared, have said the proposal's
treatment of Mr. Ergen's holdings are proper.
LightSquared's main asset is spectrum, the limited pockets of
airwaves that mobile phone and Internet companies use.
At a recent hearing, a lawyer for Mr. Ergen said the
restructuring plan wouldn't work if LightSquared loses the case
against Mr. Ergen. LightSquared said it would, and said that if
they are forced to pay Mr. Ergen back, the seven-year note is the
equivalent of being paid in full.
Judge Chapman's more immediate task is deciding whether to
approve LightSquared 's reorganization proposal, which is led by
Fortress Investment Group LLC (FIG) and others. Mr. Falcone 's
Harbinger Capital Partners hedge-fund firm, which owns a majority
of LightSquared's equity, would maintain about a 36% equity stake
in the reorganized company. Mr. Falcone is expected to testify next
week.
LightSquared is seeking approval of its reorganization as it
awaits a ruling on the suit against Mr. Ergen. It is unclear when
Judge Chapman will rule in the trial over Mr. Ergen's purchases,
which most likely will have an impact on whether LightSquared's
restructuring can succeed.
LightSquared filed for protection from creditors in May 2012
after federal regulators refused to clear its plans to launch a
wireless network, which they said could interfere with
global-positioning systems. Its previous proposals all were
contingent on the FCC approving modifications to LightSquared's
network, which the agency has said isn't imminent. The newest
Fortress proposal isn't contingent on such stringent regulatory
conditions.
Write to Joseph Checkler at joseph.checkler@wsj.com
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