Harbinger Cut Out Of LightSquared Bankruptcy Exit Plan

Aug 8 2014 | 4:40am ET

The latest bankruptcy-exit plan from Harbinger Capital Partners’ wireless internet venture would wipe out the hedge fund’s nearly $2 billion investment and end its relationship with the company.

LightSquared unveiled a new reorganization plan yesterday that includes Dish Network founder Charles Ergen, whom it and Harbinger had accused of illegally buying LightSquared debt. But it leaves Harbinger with nothing.

The plan the new reorganization replaces would have left Harbinger, which had controlled LightSquared, with a 12.5% stake in the company, with Cerberus Capital Management, Fortress Investment Group and JPMorgan Chase sharing a 74% stake. Now, if Ergen votes to approve the deal, he’ll get new debt and non-voting shares, while other LightSquared creditors would get voting shares in exchange for $500 million in new loans.

The latest twist comes after a federal bankruptcy judge rejected an earlier reorganization plan that sought to cut Ergen out; the same judge also found that Ergen had violated LightSquared’s debt covenants barring competitors from its capital structure. Should he reject the new plan, which requires him to invest $300 million, the amount of debt he’ll receive will be determined by a trial.

It is unclear whether Harbinger plans to challenge the new reorganization. The hedge fund last month sued the U.S. government, alleging that the Federal Communications Commission backed away from an agreement allowing LightSquared to deploy its network after complaints from global positioning system companies. The rejection eventually forced LightSquared into bankruptcy; the company is still trying to win approval for an electromagnetic spectrum swap that would allow it to begin operations.

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