LightSquared has many problems, but creditors of the wireless Internet venture backed by Harbinger Capital Management are focused on one: Harbinger founder Philip Falcone.
LightSquared and its lenders are discussing a one-week extension under which the latter would agree not to make a default declaration against the company. But those creditors, believed to include Carl Icahn and hedge fund Appaloosa Management, want Falcone, who has increasingly become the face of the embattled company, to step aside.
Under the tentative deal, he would, eventually: The agreement calls for Falcone to be barred from serving as an officer of LightSquared and for his eventual exit from its board of directors. Falcone appears to be open to those requirements; he told The Wall Street Journal yesterday, "I've only been on the board for two months and it was always supposed to be temporary. I am not an officer nor did I ever plan to be one."
"The board and the company need telecom and industry veterans, not hedge fund managers," he added.
LightSquared has been battling for survival since the Federal Communications Commission said earlier this year that it would not approve the company's planned network due to concerns about interference with global positioning systems.
LightSquared's board was mulling the short-term deal—which would give it time to hammer out an 18- to 24-month extension after today's deadline—last night. And while Falcone is open to stepping aside, other points remain contentious.
To begin with, creditors want to keep Harbinger from putting LightSquared into Chapter 11 bankruptcy protection, which would prevent them from declaring it in default and would allow Harbinger and Falcone time to turn the company around. Two options for making the company "bankruptcy-remote"—a so-called "bad boy" clause that would make Falcone personally liable for LightSquared's $1.6 billion in debt if he pushes the company into bankruptcy, and a "golden chair" provision that would give a director or group of directors veto power over a bankruptcy filing—have not yet been accepted by Falcone or LightSquared. Both of those provisions would depend on a longer-term deal being reached during the week-long extension.
If a deal cannot be reached, a bankruptcy filing is likely. Falcone has previously called such a move, which he initially opposed, the "best way" for Harbinger to maintain control of LightSquared.