By Patrick Fitzgerald
The fight over who will conduct the bankruptcy auction of
LightSquared is heating up as companies tied to hedge fund manager
Phil Falcone and Dish Network's Charlie Ergen vie over the fate of
the troubled wireless venture.
In a flurry of court filings Tuesday night and Wednesday
morning, LightSquared's potential bidders--two groups of
lenders--squared off with LightSquared and its owner, Mr. Falcone's
Harbinger Capital, over their competing auction proposals, each
side claiming the other's proposal would put their rivals in
position to take control of the company.
A subsidiary of Dish has already bid $2.2 billion for
LightSquared's wireless spectrum assets. Creditors U.S. Bancorp
(USB) and MAST Capital Management have also teamed and plan to
"credit bid"--or to use some of the company's debt it controls-to
purchase another spectrum controlled by LightSquared.
The two lender groups have agreed that Dish's $2.2 billion offer
should serve as the stalking horse, or lead bid, for one set of
wireless spectrum assets. Dish would $66 million break-up fee if
its offer is topped by a rival bidder. The U.S. Bank-MAST lenders,
owed some $322.3 million, would serve as the stalking horse for the
other spectrum assets.
LightSquared, which is controlled by Phil Falcone and his
Harbinger Capital Partners hedge fund firm, says those procedures
are "self-serving" and designed to ensure that only one bidder,
namely Dish, will emerge victorious at the auction.
Lawyers for the wireless company said "the bid procedures are
structured to minimize--rather than maximize--the value of its
assets and are further designed to ensure that LightSquared's
assets are available solely for the benefit of the lender parties
and their affiliated stalking horse bidders at as cheap a price as
possible," LightSquared said in court papers.
LightSquared hasn't warmed to the Dish bid and wants to retain
control of the auction process so it can decide what constitutes
the "highest and best" bid. The two bidders, however say Harbinger
is adamantly opposed to the sale, and the LightSquared auction
procedures are designed to keep Mr. Falcone in control.
LightSquared has denied those allegations and to that end the
company is proposing setting up an independent special committee to
oversee LightSquared's sale.
The proposed panel--investment banker Donna P. Alderman, former
Skadden lawyer Alan J. Carr, and hedge fund founder Neal P.
Goldman--to make binding decisions with respect to the sale and the
restructuring process, according to court papers. Two other members
including a Harbinger director and LightSquared's chief executive,
would also serve on the committee in a non-voting capacity.
Tom Lauria, a lawyer for the lenders, said his clients "haven't
completed their homework yet" on the independence of the proposed
panel members but welcomed the formation of a truly independent
committee to run the auction.
"We're glad they seem to have gotten part of the message," said
Mr. Lauria, a lawyer at White & Case, in an interview
Wednesday. "But they're still not there. Putting a Harbinger guy
and the CEO on the committee isn't independent."
Judge Shelley C. Chapman has scheduled a hearing on the
competing bid rules for Sept. 24 in U.S. Bankruptcy Court in New
York.
Dish Chairman Mr. Ergen has bought up LightSquared debt through
an investment vehicle he controls, while a subsidiary of Dish has
made the $2.2 billion for the assets. The sale would pay off the
$1.7 billion in bank debt owned by the lenders and Mr. Ergen's
investment vehicle. Harbinger has sued Mr. Ergen over the debt
purchases.
LightSquared, the holding company 96%-owned by Mr. Falcone and
Harbinger, had plans to build a nationwide, low-cost
wireless-telephone network that would serve hundreds of millions of
Americans.
The wireless venture filed for bankruptcy in May of last year
after the government said the company's network could interfere
with global-positioning systems, causing the Federal Communications
Commission to revoke LightSquared's license to use the wireless
spectrum.
That wireless spectrum remains valuable, and Mr. Falcone, who
has been building a nationwide, high-speed network for years, is
committed to holding on to it.
The FCC is considering whether to approve the company's
application to share some of the government's spectrum and modify
its licenses. Such an approval would allow LightSquared to deploy
some of its network quickly while it waits for approval on other
parts of it.
But time is running out for LightSquared and the lengthy
approval process has forced the company to explore the sale.
Mr. Falcone's legal woes have further complicated his efforts to
stay in control. The SEC last year charged him with, among other
things, taking a $113 million loan from a Harbinger fund to pay his
personal taxes as other investors were prevented from withdrawing
money.
After his initial settlement with the SEC was deemed too
lenient, the two sides earlier this summer reached a new deal that
called for Mr. Falcone to pay about $18 million in financial
penalties and agree to a five-year ban from the securities
industry. Mr. Falcone also admitted wrongdoing, a first-time
occurrence in SEC settlements not related to people who had
previously pleaded guilty in a criminal proceeding or been
criminally convicted.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
-Joseph Checkler contributed to this article.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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