Report: Centerbridge could outbid Dish for control of LightSquared

Centerbridge Partners, a private equity firm, is preparing a $3.3 billion bid to buy LightSquared out of bankruptcy, according to multiple reports, in a deal that could upend Dish Network's (NASDAQ: DISH) own $2.2 billion bid for LightSquared.

According to the reports, from the Wall Street JournalBloomberg and the Financial Times, the Centerbridge deal also includes assuming $1.7 billion in LightSquared debt. The reports all cited unnamed sources.

The Centerbridge offer is conditional and would be executed under a bankruptcy-reorganization plan, the Journal said, adding that Centerbridge's negotiations with LightSquared were fluid on Wednesday and could still fall apart. Bloomberg reported that Centerbridge is teaming up with Phil Falcone's Harbinger Capital Partners, LightSquared's main backer, as well as Fortress Investment Group for the bid.

Falcone and Dish declined to comment, according to Bloomberg, as did Centerbridge's general counsel, Susanne Clark.

Dish's $2.2 billion bid for LightSquared, which is unconditional, was made earlier this year and was to serve as the lead bid in the bankruptcy auction that was scheduled to start yesterday. However, the auction was canceled yesterday, according to a court filing.

"LightSquared is pursuing and negotiating an alternative transaction, supported by the significant stakeholders in the Chapter 11 case, other than the ad hoc secured group, that would be implemented through the debtors' Chapter 11 plan," according to the company's filing yesterday in U.S. Bankruptcy Court in Manhattan.

The ad hoc lenders group includes an investment vehicle of Dish Chairman Charlie Ergen, who privately acquired about $1 billion in LightSquared debt.

A U.S. Bankruptcy Court judge ruled on Tuesday that LightSquared can push ahead with its lawsuit against Ergen over his acquisition of LightSquared debt. LightSquared can argue before the court that Ergen bought the beleaguered company's debt on behalf of Dish and not himself. Such purchases are illegal under LightSquared's credit agreement, which prohibits competitors from buying the debt.

At the heart of the matter is a battle over LightSquared's L-Band spectrum, which Dish is seeking to acquire to enhance its spectrum holdings. 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.

Centerbridge's plan comes with a number of contingencies, according to the Journal, including FCC approval for LightSquared to build out a wireless network via swapping out some of its spectrum holdings for others. However, Dish's bid does not require an approval from regulators, which means it could potentially be executed more quickly.

"It now appears that in fact Centerbridge's bid is contingent on FCC approval of LightSquared's so-called spectrum 'swap' coming through very soon, presumably before the deal closes," TMF Associates analyst Tim Farrar wrote in a blog post. "Thus if the FCC doesn't rule quickly in favor of LightSquared, the Centerbridge deal could fall through, and Dish would then be back in the driver's seat with its original $2.2B bid."

Farrar added though that "if the process is extended past February 15, then Dish's offer could be withdrawn and LightSquared would be back at square one, so I suspect the bankruptcy court will require a firm commitment to be made by Centerbridge well before then. As a result, the FCC's previous plan, to simply ignore LightSquared's request and hope that it goes away after Dish buys the company, has now essentially become untenable."

New Street Research analyst Jonathan Chaplin speculated in a research note on how the process might play out. "The court will then have to weigh a much higher but conditional bid from Centerbridge against an unconditional bid from Dish," he wrote.  "We believe there is a decent chance that the court will give Centerbridge until the Dish offer expires on 2/15/14 to perfect its offer. If the conditions are not met by the time the Dish offer expires, the process is tough to call; however, the court may have a hard time turning down an unconditional offer from Dish that pays out all of the debt holders at that point.  In addition, there is always a prospect that Dish sweetens its offer at some point."

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

Related Articles:
Judge: LightSquared can move forward with suit against Dish, Ergen
Dish Network appears set to secure H Block spectrum at FCC auction next year
Analyst: Dish could spend up to $10.7B on LightSquared, H Block, AWS-3 and 600 MHz spectrum
Dish shareholder sues Ergen; LightSquared spectrum auction set for Nov. 25