LightSquared settles debt dispute with Dish's Ergen

In a reversal, bankrupt LightSquared settled a disagreement with Dish Network (NASDAQ: DISH) Chairman Charlie Ergen over his debt claims in the company, setting the stage for LightSquared to emerge from bankruptcy with Ergen as one of its largest creditors. That could put even more pressure on Philip Falcone, the billionaire hedge fund manager who had been backing LightSquared.

In a court hearing Monday, Joshua Sussberg, a lawyer for a special committee of LightSquared's board, said a new LightSquared bankruptcy plan would be filed within a week. According to Bloomberg and the Wall Street Journal, Sussberg said the plan would give Ergen a $1 billion debt claim, which would represent a $316 million reduction to his initial claim. However, when LightSquared exits bankruptcy, that would roll over into a new loan for the company, and Ergen will give LightSquared an additional $300 million in financing.

That would effectively replace the $1.3 billion in funding that JPMorgan Chase was going to raise for LightSquared.

The new deal is a "stunning reversal to us," David Friedman, a lawyer for Falcone and his Harbinger Capital Partners hedge fund, said at the hearing. Falcone and Harbinger had been adamant that they wanted Ergen out of any new capital structure for a reorganized LightSquared.

Friedman said he hadn't seen the proposal yet and would reserve judgment until he did, according to the Journal. Under a previous restructuring plan, Falcone was already going to see his equity in LightSquared cut to just 12.5 percent.

According to Bloomberg, Friedman said he was concerned the new plan would try to limit a lawsuit Harbinger filed against the federal government on July 11. Harbinger sued the U.S. government over the FCC's refusal to approve LightSquared's wireless network for operations. Harbinger argued that the FCC backed away from a 2010 commitment in which Harbinger would invest billions of dollars to build a network to government specifications.

LightSquared 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.

Earlier this month LightSquared unveiled a $3.05 billion restructuring plan that would give 74 percent ownership to JPMorgan, Fortress Investment Group and Cerberus Capital Management. However, Ergen did not agree to that because his debt claims would have been cut. As a result, Ergen, Falcone and the rest of the involved parties entered into extended negotiations over the restructuring.

According to the Journal, lawyers said Monday that the various lawsuits that have been filed in the bickering, including Harbinger's suit against the U.S. government, may have to be resolved for the new proposal to go through.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this TMF Associates blog post

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