LightSquared Judge Prepared to Approve $51.4 Million Loan

LightSquared Inc.’s bankruptcy judge is prepared to approve a loan of as much as $51.4 million that will allow Philip A. Falcone’s bankrupt wireless broadband venture to operate while under court protection from creditors.

U.S. Bankruptcy Judge Shelley Chapman in Manhattan said today she would review changes to the loan and was prepared to approve an agreement allowing the company to borrow $30.6 million immediately.

The loan, to LightSquared affiliate One Dot Six Corp., was modified since initial terms were proposed last month, Matthew Barr, a lawyer for the company, told Chapman today in court. An initial amount of $30 million was increased to $41.4 million, and the company will have the option to borrow $10 million more under certain conditions, Barr said.

“Around $23 million of the $30.6 million will go to make lease payments,” Barr said. Challenges to the company’s financing could be brought until Sept. 11, a month later than the first deadline, he said.

The so-called debtor-in-possession loan would be until November. The money would be used for lease payments and building projects, Barr told Chapman.

U.S. Bank

U.S. Bank NA, an agent to pre-bankruptcy lenders already owed $322.3 million by the company’s “Inc.” unit, will serve as an agent to the new loan.

One Dot Six is among LightSquared affiliates, known as the “Inc. obligors,” which need funding to operate in bankruptcy. Another group of “LP” affiliates is using cash set aside as collateral.

Lenders owning $1.1 billion of debt in the LP unit said in court papers that while they didn’t object to the new loan, it may trigger a default and LightSquared Inc. might be unable to pay legal, administrative and other reorganization costs.

The loan allocates $56 million in reorganization expenses to the LP unit and only $12 million to the Inc. unit, the group said in objections filed to the original agreement. The allocation is inconsistent with the company’s view that all of its estates “are wildly solvent,” the lenders said.

Default Held Possible

“The court could eventually be faced with the prospect of rendering a decision on reallocation that would cause LightSquared Inc. to default under the DIP facility or that would render LightSquared Inc. administratively insolvent,” the group said.

The group of LP lenders includes Capital Research & Management Co., Appaloosa Management LP and Fortress Investment Group LLC.

The judge said she will continue to monitor the company’s situation closely.

“I wouldn’t expect a situation to develop that would lead to administrative insolvency or a Chapter 7, not on my watch,” Chapman said.

LightSquared, based in Reston, Virginia, filed for bankruptcy last month with plans to try to resolve concerns of U.S. regulators who thwarted the company’s attempt to deliver high-speed wireless service to as many as 260 million people.

Failing to get the new financing “would irreparably harm the Inc. obligors, their estates, their creditors, and equity holders, and the possibility for a successful reorganization,” LightSquared said.

Harbinger Capital Partners, Falcone’s New York-based hedge fund, invested about $3 billion in LightSquared and owned about 74 percent of it as of Jan. 27.

The case is In re LightSquared Inc., 12-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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