By Joseph Checkler
A judge on Thursday said some of Dish Network Corp. Chairman
Charlie Ergen's nearly $1 billion in claims in the wireless
venture's bankruptcy case will be subordinated below those of other
creditors. However, in a separate ruling, she refused to approve
LightSquared's restructuring, saying it is unfair to Mr. Ergen.
Judge Shelley Chapman of U.S. Bankruptcy Court in Manhattan said
the amount of his debt to be subordinated is "to be determined" at
a trial later. In refusing to approve LightSquared's restructuring
proposal, the judge said Mr. Ergen is treated worse than other
holders of the company's bank debt, which would violate the
bankruptcy code.
Judge Chapman said it would be too risky to conclude that
LightSquared is worth enough to pay Mr. Ergen back over seven
years, as it has proposed to do.
The separate rulings, one on whether to approve LightSquared's
$2.65 billion restructuring plan and the other in a trial over Mr.
Ergen's debt purchases, were read aloud for hours in court
Thursday. LightSquared must now scramble to come up with a new
restructuring proposal that treats Mr. Ergen differently, although
the subordination of his debt now looms as a fact, rather than a
possibility.
Mr. Ergen, the judge said, intentionally delayed trades in order
to slow LightSquared's bankruptcy case last year, calling it a
"purposeful obstruction of the process." She said some of the
testimony from Mr. Ergen and other witnesses called by his lawyers
was "not credible," particularly regarding the delays of the
trades.
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 for the company and Mr.
Ergen. LightSquared didn't immediately have 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.
LightSquared's restructuring plan, led by Fortress Investment
Group LLC, would have allowed Mr. Falcone and his Harbinger Capital
Partners hedge-fund firm to keep at least a 35% equity stake in the
company. The two rulings made Thursday were related because Mr.
Ergen has fought his treatment under that plan.
The plan called for his nearly $1 billion in bank debt to be
paid back over seven years, via a note. Mr. Ergen wanted to be
treated like other holders of the same debt, who would get paid in
cash in full. In rejecting the restructuring plan, Judge Chapman
said it was OK for Mr. Ergen's debt to be treated differently, but
not worse. Her separate ruling to subordinate his debt, though, may
make it easier for LightSquared to formulate a new plan.
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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