Judge rejects LightSquared plan

Neither LightSquared nor Charlie Ergen received what they wanted from the latest bankruptcy court ruling in New York. U.S. Judge Shelley Chapman did not approve LightSquared’s latest reorganization proposal, saying it is unfair to Ergen. But at the same time, she said that Ergen must be subordinate to Lightsquared’s other creditors.
This Wednesday marks the two-year anniversary of LightSquared’s bankruptcy filing. The satellite communications company sought bankruptcy protection after the Federal Communications Commission told LightSquared that it could not use its 40 megahertz of spectrum in the 1.6 GHz band to offer mobile service because of potential interference with some GPS equipment operating in nearby bands.
Dish Networks then tried to buy LightSquared, apparently in an effort to acquire its spectrum so that Dish could offer wireless service. Dish dropped its bid early this year, but Dish Chairman Charlie Ergen has remained one of LightSquared’s creditors. LightSquared has contended that Ergen’s acquisition of its debt amounted to the purchase of its debt by a competitor, which is forbidden by its credit agreement.
The Manhattan judge agreed last week that Ergen had tried to make “an end run” around the LightSquared credit agreement, by buying the company’s debt through a separate investment company. Ergen is now LightSquared’s largest creditor, with $1 billion in LightSquared debt.
Separate but equal
Judge Chapman said that even though Ergen may have bent the rules in acquiring the debt, all parties involved must now deal with the fact that he does hold that debt and will need to be repaid. Investor Philip Falcone, LightSquared’s largest equity holder, had submitted a plan that would restructure the company and pay Ergen back over seven years. Meanwhile other creditors would have been paid back immediately.
The judge said LightSquared must subordinate Ergen’s debt, and may treat it differently than other debt when creating its new plan. But the company cannot give Ergen’s debt a payback plan that is clearly worse than the plan offered to other creditors, she said. The next plan from LightSquared is likely to offer similar payback terms to all creditors, but to note that Charlie Ergen will be paid after all the others, if funds are available.