Philip Falcone’s LightSquared Inc. will borrow an additional $74 million from existing lenders to stay alive in bankruptcy after saying it’s running out of cash and may fail to reorganize without more funds.
U.S. Bankruptcy Judge Shelley Chapman approved the wireless-spectrum owner’s loan agreement today in Manhattan. Lenders, including a fund controlled by Dish Network Corp. (DISH) Chairman Charles Ergen, will have priority rights to be repaid on the new loans. A prior order called for LightSquared to borrow as much as $80 million.
LightSquared faced “serious and irreparable harm” without the loan and “any remaining possibility for confirmation of a Chapter 11 plan would be at severe risk,” the company said in court papers filed today.
The largest lenders by contributed funds are Ergen’s SP Special Opportunities LLC, Capital Research & Management Co., Fortress Credit Corp. and Cyrus Capital Partners LP, according to the papers. Under the agreement, they will be repaid first in the bankruptcy and can use the new debt to “credit bid,” or take assets for no additional investment, should the company auction them off instead of reorganizing.
The loans end June 15 and LightSquared wil be able to use the lenders’ cash collateral until then, extending a previous April 15 deadline.
The financing comes as LightSquared awaits a final ruling from Chapman on whether it can reorganize under a plan that treats a prior $1 billion debt investment from the Ergen fund worse than that of other creditors in the same class.
As a competitor, Ergen was barred from owning LightSquared’s debt, the company argued at a trial in which closing arguments are expected May 5 and 6. LightSquared also alleged the debt purchases were improper because Ergen concealed that he was acting on behalf of Englewood, Colorado-based Dish.
Ergen has said he acted only for himself in buying the debt and made no “false representations.” He characterized the lawsuit as an illicit ploy to help Falcone keep control of LightSquared in bankruptcy.
LightSquared, based in Reston, Virginia, sought court protection after the Federal Communications Commission blocked the company’s wireless service, saying it might interfere with global-positioning-system navigation equipment. The company listed assets of $4.48 billion and debt of $2.29 billion.
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