LightSquared Files For Bankruptcy

May 14 2012 | 2:14pm ET

LightSquared, Harbinger Capital Management's embattled wireless Internet venture, filed for bankruptcy this afternoon, barring an unlikely last-minute agreement with creditors.

LightSquared's lenders could have declared the company in default on $1.6 billion in loans at 5 p.m., a move the company preempted with the Chapter 11 filing.

That filing was made in U.S. Bankruptcy Court in Manhattan. LightSquared listed debt and assets of more than $1 billion each.

The two sides have been negotiating for months, especially over the past two weeks, after creditors gave LightSquared two one-week extensions. The company has been in breach of covenants on the $1.6 billion in debt since the Federal Communications Commission revoked its preliminary waiver in February, citing concerns over interference with global positioning systems.

A waiver on the covenant violations had an April 30 deadline. The lenders were not expected to offer LightSquared a third extension of the waiver.

LightSquared and Harbinger have been fighting to save the former since the FCC decision. They have appealed that decision and are mulling legal action against the regulator.

The creditors, including Appaloosa Management, Fortress Investment Group and Redwood Capital Management, "are asking for conditions they know Harbinger" and founder Philip Falcone "cannot agree to," according to a media source. Among those conditions are a so-called "bad boy" clause that would make Falcone personally responsible for the debt if he was found to have influenced an eventual bankruptcy filing. But Falcone has balked at that provision alongside an agreement for him to leave LightSquared's board.

An agreement with creditors would have given LightSquared as much as two years to deal with its problems while keeping the company from filing for bankruptcy.

In the event, LightSquared's creditors may have overplayed their hand. Falcone has previously called bankruptcy the "best way" for Harbinger to retain control of LightSquared.

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