LightSquared Seeks Not to Count Ergen's Vote

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 [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires