Dish Network (NASDAQ: DISH) Chairman Charlie Ergen said he personally thought that the bankrupt LightSquared could be worth as much as $8.9 billion if it gained FCC approval for its long-planned and currently-stalled wireless network.
In testimony in U.S. Bankruptcy Court in Manhattan Wednesday, Ergen said that as LightSquared's largest creditor he should not be treated differently than other lenders. Whether he acquired LightSquared debt improperly while LightSquared was in bankruptcy protection is a central question U.S. Bankruptcy Judge Shelley Chapman needs to resolve. How she rules on that question will likely determine how LightSquared exits bankruptcy protection.
In January, Dish withdrew a $2.2 billion bid to get control of LightSquared's spectrum. Ergen blamed a "technical issue," the nature of which has not been publicly discussed, according to Reuters. The December auction of LightSquared's wireless spectrum assets was canceled, as no competing bids to Dish's offer emerged.
"On the day of the auction, Dish was prepared to move forward with $2.22 billion, although we had an inkling of the technical issue," Ergen testified, according to Bloomberg.
Dish, Ergen said, valued LightSquared at between $2.3 billion and $5.4 billion, while Ergen said he personally believed its spectrum would be worth between $5.17 billion and $8.9 billion to Dish, assuming FCC approval, according to Reuters.
LightSquared entered bankruptcy protection in May 2012 after the FCC revoked its conditional license to operate because of unresolved concerns that its planned LTE-based network would interfere with GPS receivers.
To mitigate those interference concerns, LightSquared in the fall of 2012 submitted to the FCC a request to combine the 5 MHz it uses for satellite service at 1670-1675 MHz with frequencies in the 1675-1680 MHz band, currently used by National Oceanographic and Atmospheric Administration weather balloons. The company would share the NOAA spectrum rather than gain exclusive rights to it. LightSquared would then agree not to deploy a terrestrial network in the 1545-55 MHz downlink part of the L-Band.
LightSquared's newest plan to emerge from bankruptcy would repay creditors in full and leave Harbinger Capital Partners, the hedge fund run by Philip Falcone that controls LightSquared, with a significant equity stake. Unlike earlier plans, the new one does not require that the FCC approve LightSquared's proposed spectrum use. However, getting that approval is critical since it is what largely will determine whether LightSquared has any long-term viability.
The new LightSquared bankruptcy plan would subordinate Ergen's debt claims, repaying them in the form of a note over seven years ranking behind the other lenders, who would be paid in cash. Harbinger would also retain some equity in LightSquared.
According to Reuters, in court on Wednesday the other LightSquared lenders argued that the plan is fair, insinuating that Ergen basically tricked other lenders by getting them to support Dish's plan only to later withdraw Dish's bid when he realized Dish could get the company for less money.
Ergen argues the new plan treats his claims unfairly. According to the Wall Street Journal, Ergen argued that the new plan overvalues the company and that he won't be repaid in full when the seven years is up.
"I think the value is severely reduced," Ergen said. He added, "The collateral does not cover my investment."
Ergen purchased about $1 billion worth of LightSquared's senior loan debt, and LightSquared sued Ergen over his acquisition of LightSquared debt. LightSquared argued that Ergen bought the beleaguered company's debt on behalf of Dish and not himself, and was using the debt as a way to control LightSquared's reorganization. Such purchases are illegal under LightSquared's credit agreement, which prohibits competitors from buying the debt, the company has said. Dish and Ergen argued he made the debt purchases for himself. Chapman still needs to rule on that case.
- see this Reuters article
- see this Bloomberg article
- see this WSJ article (sub. req.)
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