By Joseph Checkler
LightSquared says it was right to keep Dish Network Corp.
Chairman Charlie Ergen out of its restructuring plans, claiming it
is "not required to negotiate with a competitor in its capital
structure" even if that competitor owns nearly $1 billion of the
company's debt.
In a Saturday filing with U.S. Bankruptcy Court in Manhattan,
lawyers for Philip Falcone's wireless venture continued making
their case that the reorganization plan is fair to Mr. Ergen,
LightSquared's top secured lender.
"There is simply no doubt that [Ergen] is receiving the
indubitable equivalent of its claim," LightSquared said in a
filing. A Dish spokesman declined to comment. Mr. Ergen's response
to the filing is due later this month.
Mr. Ergen has argued that LightSquared's proposal to pay back
his nearly $1 billion in bank debt over seven years via a note,
rather than in cash like a group of hedge funds that own the same
type of debt, violates the Bankruptcy Code.
LightSquared is seeking both court approval of its restructuring
plan, and a favorable ruling in a trial over whether Mr. Ergen
improperly acquired the company's debt. The company and the hedge
funds that own the bank debt say Mr. Ergen bought his debt on
behalf of Dish, a competitor that was simultaneously trying to buy
LightSquared's assets.
LightSquared says Mr. Ergen's holdings should be disallowed or
placed below the claims of other creditors. Mr. Ergen has said he
bought it for himself through his SP Special Opportunities LLC
investment vehicle and that he wasn't acting on behalf of Dish,
which dropped its $2.2 billion bid for LightSquared's spectrum
assets earlier this year.
Judge Shelley C. Chapman, LightSquared's bankruptcy judge, must
decide the merits of both the restructuring plan and Mr. Ergen's
claims. She also will be faced with a new proceeding, Mr. Ergen's
lawsuit filed earlier this month against Mr. Falcone, who controls
LightSquared's equity through his Harbinger Capital Partners
hedge-fund firm. Mr. Ergen said Mr. Falcone has used LightSquared's
Chapter 11 case to stall for time as the company waits for
regulatory approval of its network, and wants to pursue "hundreds
of millions" in claims against him. Mr. Falcone's lawyer hasn't
commented on the charges.
LightSquared's main asset is spectrum, the limited pockets of
airwaves that mobile-phone and Internet companies use.
The company's restructuring plan, a $2.65 billion proposal led
by Fortess Investment Group LLC, would allow Mr. Falcone to keep
about 35% of the company's equity, and possibly more. It would pay
the hedge funds in full, in cash, for their holdings.
If LightSquared and the hedge funds win their case over Mr.
Ergen's debt purchases, his treatment under the restructuring could
become moot. Mr. Ergen's lawyers have said that if his claims are
counted, the math on the restructuring wouldn't work.
Judge Chapman's decision on whether to disallow or lower the
priority of Mr. Ergen's debt purchases will most likely have an
impact on whether she can approve the restructuring. The Bankruptcy
Code is clear that any restructuring proposal would have to give
him equal treatment to those owning the same type of debt.
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 Federal Communications Commission 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.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@wsj.com
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