LightSquared's bankruptcy odyssey is over. After spending nearly three years in bankruptcy protection, the wireless firm won approval for a new restructuring plan from a federal bankruptcy court judge and will get recapitalized. Critically, although Dish Network (NASDAQ: DISH) Chairman Charlie Ergen, LightSquared's largest creditor, will get paid in cash for his $1 billion debt claim in LightSquared, he will not be a part of the company's new capital structure.
U.S. Bankruptcy Judge Shelley Chapman noted in her ruling that "more than a dozen plans have been announced or proposed" over the course of LightSquared's bankruptcy, involving "countless hours of human capital."
Under the plan, LightSquared will be put in the hands of investors including Fortress Investment Group and Centerbridge Partners as well as a unit of JPMorgan Chase & Co. Philip Falcone's Harbinger Capital Partners hedge fund, which founded LightSquared and was its chief backer before the bankruptcy filing, will get a minority stake in the new company. Ergen's investment fund agreed to withdraw its objection to the plan. Ergen will be paid thanks to a new $1.52 billion loan arranged by Jefferies & Co., which will cover the interest Ergen has accrued on his debt claim.
Meanwhile, Solus Alternative Asset Management and Cerberus Capital Management, which had presented an alternative restructuring plan, dropped their opposition to the LightSquared-proposed plan after LightSquared agreed to buy back their preferred stock and debt, according to the Wall Street Journal.
"This has been a long journey, and today's ruling will allow us to emerge from Chapter 11 well-capitalized and better positioned to achieve our goals," LightSquared CEO Doug Smith said in a statement, according to the WSJ.
"I am excited to get back to work, alongside our world-class leadership team, to the business of deploying our spectrum for the benefit of the American people," Smith added, according to Bloomberg¸ calling it a "new day" for the company.
LightSquared initially launched with the goal of building a nationwide wireless LTE network that other companies could use 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. LightSquared vigorously contested that move and sued the FCC in July 2014.
In mid-2013, Ergen was the only bidder for the LightSquared's assets, offering $2.22 billion. In January 2014 he withdrew the bid.
Falcone accused Ergen of illegally acquiring its debt to block other restructuring plans and lead a Dish takeover that would see Dish getting LightSquared's spectrum for below-market prices. Ergen said it was merely a personal investment, but Falcone and Ergen sparred over those claims in a trial. Eventually, LightSquared's other stakeholders stepped in.
"The funds managed to pry Falcone's and Ergen's hands off each other's throats by putting enough cash on the table for Ergen to get his money back more than in full," Erik Gordon, a law professor at the University of Michigan, told Bloomberg.
The companies in the dispute often differed sharply over the value of LightSquared's spectrum, which hinges upon whether the company will ever be able to get FCC approval to use it to launch an LTE network.
As the WSJ notes, what happens now is unclear. LightSquared first needs to get regulatory approval to exit bankruptcy and then is likely to seek FCC approval to use its spectrum.
Meanwhile, although LightSquared has been mired in bankruptcy, Dish has amassed a war chest of over 50 MHz of mid-band spectrum, and its two designated entity partners are in the process of seeking approval to acquire licenses for around 25 MHz of AWS-3 spectrum, including 13 MHz of paired spectrum. However, Dish does not yet have a partner to build out its spectrum, which has led to much industry speculation over what Ergen will do.
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