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A judge on Tuesday approved several measures that will keep LightSquared Inc. running, one day after the stumbling wireless satellite company controlled by hedge-fund manager Phil Falcone filed for Chapter 11 bankruptcy in New York.
Judge Shelley C. Chapman of U.S. Bankruptcy Court approved several first-day measures, including allowing it to continue using its bank accounts and pay its 168 employees.
The company filed for Chapter 11 on Monday afternoon after failing to reach a deal with creditors to avoid a default. The Reston, Va., company owes more than $2 billion on two credit facilities, and says its assets--mostly license agreements and contracts--are worth $4.45 billion.
LightSquared in the past few years has become the favorite project of Falcone, who has poured much of his own fortune as well as the money of his hedge-fund investors at Harbinger Capital Partners into the company. LightSquared set a goal of building a wireless broadband network that could provide satellite cellphone service to 260 million Americans by the end of 2015.
But the business plan stalled, which the company blames on the Federal Communications Commission's contention that the network would interfere with global-positioning systems.
Milbank, Tweed, Hadley & McCloy LLP's Matthew S. Barr, a lawyer for LightSquared, said in court Tuesday, "We're not here because of the FCC's issues," but rather the need for time to solve them.
"We believe there is a reasonable solution here," he added, saying several times that the company hopes to use bankruptcy as a "runway" to agreements with both regulators and its creditors. When asked by Chapman how far along the company has come toward its goal, Barr said not very far.
Originally, Barr said, LightSquared thought the FCC issues were "minor things that were fixed and flexible."
LightSquared filed for bankruptcy after failing to come to an agreement with lenders before a 5:00 p.m. deadline Monday. The company owes $320 million to a group whose loans are secured by the company's leases on wireless spectrum, and equity interest in that spectrum. But its bigger obligation is $1.7 billion in loans secured by the company's assets.
White & Case LLP's Thomas E. Lauria, a lawyer for the group owed more, said in court that the issues with the FCC could take "years to resolve" and that he was concerned the company could burn through its nearly $200 million in cash during that time.
"It really isn't a business," Lauria said. "It's a vision of a business."
Falcone and Harbinger own most of LightSquared's stock, investing billions of dollars into a venture that sought to compete with communications heavyweights like AT&T Inc. (T) and Verizon Wireless. But efforts to build a national network stalled as federal regulators began to raise the GPS issues.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
-Joseph Checkler; 212-416-2152; email@example.com; Twitter: @JoeCheckler