Harbinger To Get 12.5% Of LightSquared Under New Bankruptcy Plan

Jul 2 2014 | 9:02am ET

In order to save LightSquared, the wireless Internet venture that he’s sunk $3 billion of client assets into, Philip Falcone is ready to give up control of the company.

LightSquared, which has been in bankruptcy protection for more than two years, formally unveiled the outlines of its second reorganization plan yesterday before the judge who rejected its first. The new $3.05 billion proposal, hammered out with creditors in mediation with another federal bankruptcy judge, will give 74% of the equity in LightSquared to Cerberus Capital Management, Fortress Investment Group and JPMorgan Chase, who will provide $1.45 billion of the $1.75 billion in new equity under the plan.

Falcone’s Harbinger Capital Partners, which currently owns upwards of 90% of LightSquared’s equity, would be left with just 12.5% of the reorganized company.

The plan, which also includes $1.3 billion in new debt, has still not been finalized. And LightSquared’s largest creditor, Dish Network Chairman Charles Ergen, has not accepted it.

Ergen’s lawyer, Rachel Strickland, indicated at yesterday’s hearing that he wouldn’t quietly accept a plan that would pay him $470 million in cash for the roughly $1 billion in debt he owns, plus an unsecured note worth at least $492 million. The judge whose mediation led to the new deal said that Ergen did not participate in the sessions “in good faith” and “wasted the parties' and the mediator’s time and resources.”

Strickland said Ergen would insist on a repeat of the last plan's two-phase trial, determining first its legality and then the fairness with which it treats Ergen’s debt, the sticking point in U.S. Bankruptcy Judge Shelley Chapman’s rejection of the first plan in May. Chapman was not amused.

“Delay is not this case’s friend, but delay is something that can be utilized by your client at this point,” Chapman, who also ruled in May that part of Ergen’s debt could be subordinated due to his violation of covenants barring competitors from LightSquared’s capital structure, said.

Strickland insisted that Ergen “is not looking for delay,” but does want “his day in court.” She added that she had spoken to U.S. Bankruptcy Judge Robert Drain, the mediator who was so harsh to her client, yesterday, and said the talks were “constructive.”

Other LightSquared creditors, holding about $1 billion in debt, would be repaid in cash.

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