Report: Falcone could lose LightSquared to hedge fund affiliated with Dish's Ergen

Bankrupt LightSquared and a hedge fund connected to Dish Network (NASDAQ: DISH) Chairman Charlie Ergen could be headed for a showdown in bankruptcy court as the hedge fund has been buying up LightSquared debt, according to a Wall Street Journal report.

The report, which cited unnamed sources familiar with the matter, said that Sound Point Capital Management, a hedge fund firm run by one of Ergen's former bankers, now holds more than $600 million of LightSquared's roughly $1.7 billion bank loan. LightSquared, which has been in Chapter 11 bankruptcy protection for almost a year, has until May 31 to file a plan of reorganization and has sole control over its reorganization plan until July 15.

The Journal report noted that it is unclear whether Ergen or Dish has played any role in Sound Point buying up LightSquared's debt. Ergen hasn't addressed the trades, and Dish declined to comment, the report said.

Sound Point's control over LightSquared's debt gives it more leverage as LightSquared works through its bankruptcy proceedings, and could lead to Sound Point trying to get control of the company from Philip Falcone, the head of the Harbinger Capital Partners hedge fund, LightSquared's principal backer. Sound Point's founder, Stephen Ketchum, is a former banker at Bank of America and UBS and has a long-standing relationship with Ergen, the report said. 

Earlier this week Dish itself priced a debt offering of $2.3 billion and said the proceeds could be used for "wireless and spectrum-related strategic transactions." Dish raised $1.5 billion in December for similar reasons. LightSquared's loan agreement prohibits competitors, including Dish, from buying its debt. According to the Journal, Falcone and his advisers argue that LightSquared will be valuable once it gets permission from the FCC to use spectrum to build out its network, though that is a highly uncertain matter at this point.

LightSquared, which had intended to launch a nationwide wholesale LTE network before the FCC nixed that effort over spectrum interference concerns, has filed a new spectrum proposal with the FCC that would combine the 5 MHz it uses for satellite service at 1670-1675 MHz with frequencies in the 1675-1680 MHz band, currently used by National Oceanographic and Atmospheric Administration weather balloons. The company would share the NOAA spectrum rather than gain exclusive rights to it.

Such an arrangement would give the company 10 MHz for downlink LTE traffic. The company would employ another pair of bands totaling 20 MHz--which it uses for satellite services now--for LTE traffic going upstream from users' mobile devices. The total 30 MHz of spectrum would be 10 MHz less than LightSquared had originally intended to use for its LTE network.

In January 2011 the FCC gave LightSquared a conditional waiver to launch terrestrial service on its spectrum, contingent on LightSquared resolving concerns about interference between its spectrum and GPS receivers. In February the FCC revoked the waiver and essentially shut down LightSquared's network plans after tests concluded that there was no practical way to mitigate the GPS interference concerns, a conclusion that LightSquared disputed. LightSquared filed for bankruptcy protection in May 2012.

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

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Correction, April 10, 2013: This article incorrectly referred to the amount of debt Dish Network raised in December 2012. It was $1.5 billion.