Report: LightSquared plan to exit bankruptcy rests on unwilling regulators

Dish Network (NASDAQ: DISH) may have withdrawn its $2.2 billion bid to get control of LightSquared's spectrum, but LightSquared's plan to get out of bankruptcy rests on getting approval from the FCC to modify its spectrum holdings. Despite statements from Harbinger Capital Partners, LightSquared's chief backer, that such approval is "within reach," regulators have not yet set a timetable for granting such approval, according to a Bloomberg report.

According to the report, which cited unnamed sources familiar with the regulatory review, the agencies have misgivings about LightSquared's plan. Philip Falcone, who runs Harbinger, has funding from his creditors only through Jan. 31, and needs a federal bankruptcy court judge to approve a new financing plan for LightSquared. However, that plan crucially rests on getting regulatory approval for LightSquared to swap out some of its spectrum holdings for others by the end of 2014.

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.

To mitigate those interference concerns, LightSquared in the fall of 2012 submitted to the FCC a request to 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. LightSquared would then agree not to deploy a terrestrial network in the 1545-55MHz downlink part of the L-Band.

"I'm not aware of any developments that would make the FCC disposed to approving the project now after technical problems," Sen. Charles Grassley (R-Iowa) said in an email to Bloomberg.

LightSquared, Harbinger, the FCC and the National Telecommunications & Information Agency declined to comment, according to the report.

Meanwhile, LightSquared is continuing a trial against Dish Chairman Charlie Ergen. Dish's bid was filed by a group of LightSquared lenders that are owed nearly $2 billion. LightSquared sued Ergen over his acquisition of LightSquared debt. LightSquared argued that Ergen bought the beleaguered company's debt on behalf of Dish and not himself, and was using the debt as a way to control LightSquared's reorganization. Such purchases are illegal under LightSquared's credit agreement, which prohibits competitors from buying the debt, the company has said. Dish and Ergen argued he made the debt purchases for himself.

As the Wall Street Journal notes, if LightSquared's lawyers can prove that Ergen's debt purchases were illegally made for Dish, his claims in the bankruptcy case would drop back behind those of other creditors. Judge Shelley Chapman of U.S. Bankruptcy Court in Manhattan will ultimately decide.

TMF Associates analyst Tim Farrar wrote that Dish's withdrawal of its bid "has thrown what was already a massively complicated and controversial bankruptcy case further into chaos, as we start the trial on whether Ergen's purchase of LightSquared debt was illegitimate (and warm-up for a lengthy contested confirmation hearing over the next [three] weeks). Of course, the withdrawal of the bid completely undercuts LightSquared and Harbinger's arguments that the Ergen always knew Dish would come in and buy out his debt holdings and it will be interesting to see the effect on this part of the trial. Thus the withdrawal is certainly a logical move simply for that reason alone."

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

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