Dish's Ergen would get control of LightSquared in latest restructuring deal

Dish Network (NASDAQ: DISH) Chairman Charlie Ergen would gain control of 60 percent of LightSquared under a new plan to bring the firm out of bankruptcy. However, as has been in the case in the long-running bankruptcy saga of LightSquared, more drama is expected since Harbinger Capital Partners, the hedge fund that is LightSquared's controlling shareholder, objects to the new restructuring.

Harbinger, run by Philip Falcone, has been fighting Ergen in a battle to retain control of at least some of LightSquared's spectrum assets. However, the new plan that favors Ergen has the backing of all of LightSquared's stakeholders except Harbinger and would not break up the company into different pieces. The new proposal makes Harbinger increasingly isolated in its battle.

Under the new plan announced in bankruptcy court on Monday, Ergen would get 60 percent of the new equity in the restructured LightSquared as well as $1 billion in new junior debt, according to the Wall Street Journal. J.P. Morgan Chase, a LightSquared creditor, would get 31.9 percent of the equity along with a seat on the board in exchange for its debt and $189 million in funding. Meanwhile, other creditors would receive a smaller piece of equity and warrants to purchase common stock. LightSquared would also raise between $750 million and $1 billion in fresh capital as part of the new plan.

According to the WSJ, $189 million is being set aside in an escrow account, funded by J.P. Morgan, until Harbinger's claims are settled. Falcone is entitled to no other compensation under the plan.

Harbinger and Ergen have bene battling in court for more than a year over allegations by Harbinger that Ergen wanted to gain control of LightSquared on Dish's behalf illegally. Ergen, through a fund known as SP Special Opportunities Inc., acquired around $1 billion of LightSquared loan debt; he argued he made the investment personally and outside of his role as chairman of Dish.

According to Bloomberg, just after the new plan was announced in court, David Friedman, a lawyer for Harbinger, told U.S. Bankruptcy Judge Shelley Chapman that the new plan "made a mockery" of the court process, since Ergen had previously testified he had no interest in controlling LightSquared. Harbinger said deal would give Ergen a windfall that is much larger than his debt claims against LightSquared.

"Giving him the keys to the company is not without controversy, not without significant issues for us," Friedman said of Ergen. Friedman said Harbinger would fight any attempt to approve the new plan, which is expected to be formally filed within the next week.

The plan was the result of an all-day mediation on Oct. 31 with U.S. Bankruptcy Judge Robert Drain. Drain said that, while the goal was to get a plan every party could agree on, "I have concluded at this time such a result cannot be achieved."

Harbinger tried and failed to get other restructuring plans approved earlier this year. The latest plan still needs to be approved by U.S. Bankruptcy Judge Shelley Chapman, who pushed back on LightSquared's desire to hold a confirmation hearing to approve the new plan before the end of the year.

Chapman urged the parties to consider a date in January to avoid a year-end rush for the lawyers involved, though she is holding open a Dec. 15 court date. The parties will meet again on Nov. 14 to discuss the timing of confirmation, the Journal said.

LightSquared initially launched with the goal of building a nationwide wireless LTE network that other companies could piggyback on in order to offer their own services to customers. The company entered bankruptcy protection in May 2012 after the FCC revoked its conditional license to operate because of unresolved concerns that LightSquared's planned LTE-based network in the L-band would interfere with GPS receivers.

For more:
- see this WSJ article (sub. req.)
- see this Reuters article
- see this Bloomberg article

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