Tuesday, 31 May 2016
Last updated 3 days ago
Jun 30 2014 | 9:35am ET
Harbinger Capital Management’s wireless internet venture may be on the verge of exiting bankruptcy protection, even without the support of its largest creditor.
LightSquared has hammered out a new reorganization plan in mediation with a federal bankruptcy judge. The proposal adds a new investor, Cerberus Capital Management, but excludes Dish Network founder Charles Ergen, for whom the judge-mediator had harsh words.
Ergen and the hedge fund through which he bought about $1 billion in LightSquared debt, SP Special Opportunities Fund, “have not participated in the mediation in good faith and have wasted the parties’ and the mediator’s time and resources,” U.S. Bankruptcy Judge Robert Drain, appointed to the mediator’s role by his colleague, Shelley Chapman, wrote. “I understand the seriousness of this assertion; it is unique in my experience as a mediator in a field where the parties are known to assert their positions aggressively and sharp elbows in negotiations, although not welcome, are tolerated.”
Drain—whom Chapman imposed on LightSquared and Ergen after rejecting the former’s first reorganization plan, backed by Fortress Investment Group, as unfair to the latter—complained that Ergen left one of the three mediation sessions without his permission, and had his wife attend in his place for another.
Harbinger founder Philip Falcone, Fortress and Cerberus attended all of the sessions. Drain pronounced the mediation “primarily successful,” and said that it was over. He added that he expects that the plan, all essential points of which have been agreed by all parties except Ergen, could be approved.
Chapman is set to hold a hearing on the matter tomorrow. It is unclear how she will handle Ergen’s refusal to accept the deal; while she called the first bankruptcy plan unfair to him, she also found that he had improperly purchased the debt, which was barred to competitors, and said some of it could be subordinated.
For its part, LightSquared is still awaiting approval for its network from the Federal Communications Commission. It has burned through more than $1 billion in bankruptcy, necessitating the addition of another source of financing. The emergence of Cerberus is something of a surprise; Falcone had previously said he did not want to work with the firm.