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Falcone’s Harbinger Hedge Fund Said to Borrow $190 Million at 15% Interest

Phil Falcone’s hedge fund, which tumbled by almost half last year because of a troubled wireless venture, is paying a 15 percent interest rate for a $190 million loan, almost triple what the riskiest corporate borrowers pay, said two people with knowledge of the loan.

The billionaire borrowed the money from Jefferies Group Inc. (JEF) after paying off a $400 million loan from UBS AG on Jan. 30. Falcone got $160 million from New York-based Jefferies after fees, and will pay an annualized rate of 15 percent on the loan, which matures on Oct. 31, according to the people, who asked not to be named because the fund is private. Interest on the loan will be paid monthly.

Junk-rated companies paid 5.15 percentage points more than the three-month London interbank offered rate at the end of January, according to Standard & Poor’s Leveraged Commentary & Data. The benchmark was 0.39 percent yesterday. The average annual rate for credit card borrowers is 14.9 percent, according to a Feb. 1 report published by CreditCards.com.

The premium Falcone’s hedge fund must pay to borrow money illustrates just how risky lenders view his biggest wager. His main Harbinger Capital Partners Master Fund I has more than 60 percent of its assets invested in LightSquared Inc., a Reston, Virginia-based firm that plans to build out a network offering high-speed data service to as many as 260 million people.

Source: APCO Worldwide via Bloomberg

Phil Falcone, founder of Harbinger Capital Partners. Close

Phil Falcone, founder of Harbinger Capital Partners.

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Source: APCO Worldwide via Bloomberg

Phil Falcone, founder of Harbinger Capital Partners.

LightSquared is awaiting final clearance from the Federal Communications Commission as regulators weigh test results that show the service’s signals disrupt global-positioning system equipment used by cars, tractors, boats and planes.

Ferrous Resources

LightSquared argues that technical solutions exist to resolve the interference and GPS manufacturers should have planned to accommodate the firm’s use of the spectrum.

Lew Phelps, a spokesman for Harbinger, and Richard Khaleel, a Jefferies spokesman, declined to comment.

The loan is backed by the fund’s assets, according to the people, including a 27 percent stake in Ferrous Resources Ltd., an iron-ore producer in Brazil. If any assets are sold, Jefferies gets paid first, according to the people, and the lender has the right to help sell some of the assets at an agreed upon minimum price.

The Harbinger fund will make a prepayment of $47.5 million on April 30 and another of the same amount on July 31, according to the people.

While Harbinger is cutting its borrowing by half, the rate is higher than for its UBS loan, which was issued on July 28, 2010 at 95 cents on the dollar with a 10 percent annual interest rate, according to the Harbinger Capital Partners 2010 audited financial statement.

Harbinger, which managed $4 billion at the end of last year, down from a peak of $26 billion in mid-2008, has sunk about $3 billion into LightSquared. The fund wrote down the position by 59 percent last year because of the uncertainty over whether LightSquared would receive final approval from the FCC.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Anthony Effinger in Portland at aeffinger@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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