Judge tosses out LightSquared's latest bankruptcy plan

Bankrupt wireless firm LightSquared and Dish Network (NASDAQ: DISH) Chairman Charlie Ergen face court-ordered mediation if they can't figure out their differences over LightSquared's restructuring, a federal bankruptcy court judge ruled.

U.S. Bankruptcy Court Judge Shelley Chapman threw out LightSquared's latest restructuring proposal. Chapman ruled that LightSquared's plan would have illegally treated Ergen worse than other holders of the company's bank debt. The judge essentially said it would be too risky to conclude that LightSquared is worth enough money to pay Ergen back over the course of seven years, as it has proposed to do, as the Wall Street Journal notes.

However, in a blow to Ergen, Chapman also ruled that some of the $1 billion in LightSquared debt claims held by Ergen will be subordinated below those of other creditors. The judge found that Ergen had used a front company to buy LightSquared's debt on behalf of Dish and not himself, as he had claimed. Importantly, Chapman ruled that Ergen's actions were "no doubt" made on Dish's behalf, and she cited a "troubling pattern of non-credible testimony" by Ergen and those who helped him make his investments.

Now, LightSquared and its principal backer, Philip Falcone and his Harbinger Capital Partners hedge fund, must negotiate with Ergen. If they are unable to reach an agreement, they will face court-ordered mediation.

Dish had bid $2.2 billion for a large portion of LightSquared's spectrum, but then dropped that bid earlier this year, citing an undisclosed technical issue. LightSquared had accused Ergen of illicitly buying its debt so he could control the reorganization and get its spectrum at a discount. Article

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