By Joseph Checkler
NEW YORK--Philip Falcone said Monday he constantly tried to
squeeze Dish Network Corp. Chairman Charlie Ergen out of
LightSquared's restructuring plans, believing Mr. Ergen should
never have been allowed to buy the wireless venture's debt in the
first place.
Testifying at a hearing over whether LightSquared's $2.65
billion reorganization proposal should be approved, Mr. Falcone was
read his own emails referring to "jamming Charlie" out of
LightSquared's capital structure. In another email exchange, he and
an investor discussed offering Mr. Ergen a settlement for less than
his claims in the case, with a suggestion that "we go for the
jugular" if it wasn't accepted.
"I didn't think Charlie should be there to begin with," said Mr.
Falcone when questioned by a Dish lawyer in a New York bankruptcy
court. Mr. Falcone runs the Harbinger Capital Partners hedge fund
firm, which owns a majority of LightSquared's equity.
The Dish lawyer, James C. Dugan, read an email Mr. Falcone sent
to a reporter about a previous LightSquared proposal that treated
all parties in the case well "except Ergen. He got stuffed."
Later, Mr. Falcone's own lawyer asked questions about the final
outcome of the restructuring negotiations and whether Harbinger got
everything it wanted. Mr. Falcone said, "Absolutely not." Harbinger
wouldn't have a board seat in a reorganized LightSquared, and its
80% equity stake in the company would drop dramatically. Harbinger
would maintain about a 30% equity stake in the reorganized company,
but on Monday, Mr. Falcone said that number could grow to as much
as 45% if Harbinger contributes more money in the financing
package.
Mr. Ergen testified last week that the restructuring proposal
treats him unfairly. His $850 million in bank debt would be repaid
over seven years in the form of a note, while a group of hedge
funds owning the same type of debt would be paid in full, in
cash.
On Monday, Mr. Falcone said that if he had his way, Mr. Ergen's
claims would be treated even worse by the plan. He said Mr. Ergen's
claims in the case are "more than covered" by the proposal.
While LightSquared is trying to get its restructuring plan
approved, the company and those hedge funds also are trying to
prove that Mr. Ergen only bought the company's debt as part of a
plan to acquire a "blocking position" that would ease LightSquared
into the hands of Dish. Earlier in the case, Dish offered $2.2
billion for LightSquared's wireless spectrum but later dropped the
bid.
If LightSquared and the hedge funds win, Mr. Ergen's debt
holdings could be disallowed or placed below other creditors in the
order to be paid, making his treatment under the restructuring
moot. The lawsuit over Mr. Ergen's purchases of the debt accuses
him of improperly buying it on behalf of Dish, a LightSquared
competitor prohibited from investing in the wireless venture. Mr.
Ergen says he bought the debt as a personal investment.
Judge Shelley C. Chapman of U.S. Bankruptcy Court in New York on
Monday again closed portions of the hearing to the public, citing
the "technical" issue that Dish says forced it to drop its bid
earlier this year.
LightSquared's main asset is spectrum, the limited pockets of
airwaves that mobile-phone and Internet companies use.
At a recent hearing, a lawyer for Mr. Ergen said the
restructuring plan wouldn't work if LightSquared loses the case
against Mr. Ergen. LightSquared said it would, and said that if it
is forced to pay Mr. Ergen back, the seven-year note is the
equivalent of being paid in full.
Now, Judge Chapman must make two related decisions: Whether to
approve the reorganization proposal--a $2.65 billion plan led by
Fortress Investment Group LLC that includes a $1.65 billion
bankruptcy loan from a group led by Melody Capital Partners
LLC--and how to treat Mr. Ergen's claims.
Her decision on whether to disallow or lower the priority of Mr.
Ergen's debt purchases will most likely have an impact on whether
the restructuring can proceed. Mr. Ergen is LightSquared's largest
secured creditor, and 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 FCC 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 joseph.checkler@wsj.com
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