Wireless venture LightSquared wants to disqualify the "no" vote
to its restructuring proposal of Dish Network Corp. Chairman
Charlie Ergen, saying he improperly acquired LightSquared debt as
part of a "comprehensive and premeditated" plan to buy the
company.
In a Monday filing with U.S. Bankruptcy Court in Manhattan,
LightSquared asked Judge Shelley C. Chapman to "designate" Mr.
Ergen's vote against the plan, which has broad support among
LightSquared's creditors except Mr. Ergen's SP Special
Opportunities vehicle, the largest holder of LightSquared's secured
debt.
"SPSO will vote down any plan that does not provide the Ergen
Parties and/or SPSO with a strategic interest in LightSquared's
spectrum, and any assertion by the Ergen Parties or SPSO to the
contrary is just plain fiction," lawyers for LightSquared said in
the filing. A Dish spokesman didn't immediately respond to a
request for comment. LightSquared had said in court it would seek
the designation.
Vote designation is a tool used by companies in bankruptcy to
not count the votes of creditors if they failed to vote in "good
faith." While designation is relatively rare, it isn't for Dish. In
2009, the company had its votes designated in the case of another
bankrupt satellite company, DBSD North America Inc., although Dish
still ended up buying DBSD.
Judge Chapman will consider the issue as part of LightSquared's
bid to get its restructuring proposal approved later this month.
Because his $850 million in bank debt represents such a large chunk
of LightSquared's secured loans, not counting Mr. Ergen's votes
would allow the judge to approve the plan.
The filing Monday is part of a two-punch by LightSquared
designed to either minimize or completely erase Mr. Ergen's debt
holding in LightSquared.
In a trial before Judge Chapman, LightSquared and hedge funds
that own the same type of bank debt owned by Mr. Ergen are trying
to prove he bought it improperly on behalf of Dish, a competitor
that was prohibited from buying it. They say the purchases were
part of a "scheme" to gain control of the debt to make it easier
for Dish to buy LightSquared. Dish had previously offered, with the
hedge funds' blessing, $2.2 billion for a large swath of
LightSquared's spectrum before abandoning the bid in January.
If LightSquared and the lenders win the case against Mr. Ergen,
his claims could be disallowed or pushed behind those of other
creditors.
LightSquared's restructuring proposal would theoretically pay
Mr. Ergen in full for his holdings but would give him a
"third-lien" note that would be repaid over seven years rather than
cash. The hedge funds, who own a large chunk of that bank debt,
would get cash under the plan.
The LightSquared restructuring proposal, backed by Fortress
Investment Group LLC is scaled down from a $4 billion Fortress-led
reorganization that LightSquared abandoned earlier. It calls for a
$1.65 billion loan while the company is in bankruptcy proceedings
and then a fresh $1 billion loan to finance the company once it
exits Chapter 11.
The new plan isn't contingent on regulatory approval, a key
difference between this and a prior Fortress-led proposal.
Therefore, the plan requires less funding because LightSquared
would emerge from bankruptcy proceedings much sooner than under the
prior one.
Phil Falcone's Harbinger Capital Partners, which currently
controls LightSquared, would participate in the new financing and
retain an equity stake. Harbinger would own about 36% of
LightSquared's equity if this proposal gets approved, a person
familiar with the matter has said.
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.
Spectrum, LightSquared's main asset, refers to the limited
pockets of airwaves that mobile phone and Internet companies
use.
Write to Joseph Checkler at joseph.checkler@wsj.com
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