LightSquared wins restrictions on debt and equity trades

LightSquared has prevailed in one of its initial bankruptcy court battles, winning a ruling that should help it preserve $1.5 billion in tax breaks and stay in the game to battle regulators over the use of its L-Band spectrum licenses.

The Wall Street Journal reported that Judge Shelley C. Chapman of the U.S. Bankruptcy Court in Manhattan on Monday sided with LightSquared in its quest to restrict trading of its debt and stock during the company's ongoing Chapter 11 proceeding.

The decision will help LightSquared preserve more than $1.5 billion in tax breaks, according to the company, which had argued that it might lose them if trades of its debt or equity caused a change of company control.

Judge Chapman acknowledged that "under certain circumstances," a stockpiling of debt could "severely limit" LightSquared's ability to use the tax benefits and wrote in her court order that restricting the trading of LightSquared's debt and stock is ""therefore in the best interests of the debtors, their estates and their creditors."

LightSquared's lenders had argued that they should retain their contractual right to trade the debt they hold. The lender group--which holds some $1.1 billion of $1.7 billion in LightSquared bank debt--includes hedge-fund managers Appaloosa Management, Fortress Investment Group and Silver Point Capital, according to the Wall Street Journal.

Under the court's ruling, if a creditor buys up too much debt from LightSquared's lenders, the company can request that the bankruptcy court force the creditor to reduce its stake. Further, current equity holders--including any who already hold a stake of at least 4.5 percent of common or preferred stock or any who plan to acquire at least that amount of stock--must notify the court 20 days ahead of a trade, giving LightSquared time to approve or reject the trade.

In February 2012, the FCC revoked conditional permission for LightSquared to build its planned wholesale LTE network in L-Band spectrum due to GPS interference concerns. LightSquared, which is backed by billionaire Philip Falcone and his Harbinger Capital hedge fund, blasted the FCC's decision as a "disastrous bait-and-switch" and a violation of its "constitutional rights." The company has been struggling to stay afloat every since the FCC announced its decision.

LightSquared filed for voluntary Chapter 11 bankruptcy last month, aiming to buy itself time for resolving its spectrum issues with the FCC, settling its $2 billion-plus debt burden and attracting new capital to support its hoped-for terrestrial LTE network buildout.

For more:
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Wall Street Journal article (sub. req.)

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