By Joseph Checkler
A judge on Thursday said some of Dish Network Corp. Chairman
Charlie Ergen's nearly $1 billion in claims in LightSquared's
bankruptcy case will be subordinated below those of other
creditors.
Judge Shelley Chapman of U.S. Bankruptcy Court in Manhattan said
the amount that will be subordinated is "to be determined."
The wireless venture had said Mr. Ergen improperly bought his
claims on behalf of Dish as part of a plan to ease LightSquared
into Dish's hands, and the judge essentially agreed. Mr. Ergen has
denied that allegation, saying he made the purchases for himself
via his SP Special Opportunities, or SPSO, investment vehicle.
The judge said that while Mr. Ergen's investment vehicle was
"not technically prohibited" from buying LightSquared's bank debt,
he made "an end run" around a credit agreement.
"Mr. Ergen found a loophole in the express terms of the credit
agreement and exploited it," Judge Chapman said. "SPSO was
essentially a front used by Mr. Ergen."
A spokesman for Dish declined to comment.
While concluding that at least some of the purchases were
"carried out for the benefit of Dish," Judge Chapman refused to
cancel the debt entirely, citing the Bankruptcy Code. She also
refused to award damages to LightSquared and its main equity
holder, Philip Falcone, because they failed to go after Mr. Ergen
for the purchases until it was "too late in the game."
Dish had bid $2.2 billion for a large swath of LightSquared's
wireless spectrum, but dropped that bid earlier this year, citing
an undisclosed technical issue regarding LightSquared's
network.
Judge Chapman was reading her rulings in court on Thursday on
both the trial over Mr. Ergen's claims and later on whether to
approve LightSquared's $2.65 billion restructuring plan. The plan,
led by Fortress Investment Group LLC, would allow Mr. Falcone and
his Harbinger Capital Partners hedge-fund firm to keep at least a
35% equity stake in the company. The two rulings are related
because Mr. Ergen has fought his treatment under the plan.
The plan calls for his nearly $1 billion in bank debt to be paid
back over seven years, via a note. Mr. Ergen wants to be treated
like other holders of the same debt, who would get paid in cash in
full. Now that some of his debt will be subordinated below other
creditors, it is unclear how the plan might change.
LightSquared 's main asset is spectrum, the limited pockets of
airwaves that mobile-phone and Internet companies use.
LightSquared filed for Chapter 11 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 restructuring proposals all were contingent on the
Federal Communications Commission approving modifications to
LightSquared's network, which the agency has said isn't imminent.
LightSquared has touted the fact that 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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