LightSquared Says It Was Right to Shut Dish's Ergen Out of Restructuring Plans

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 [e-mail]

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