Philip Falcone’s LightSquared Inc. shouldn’t be allowed to run its own bankruptcy auction, a group of lenders said, citing depleted cash, a changing industry and a controlling shareholder who wants to block the sale.
The lenders, a trustee or an independent committee should conduct the planned asset auction, the lenders said in a filing yesterday in U.S. Bankruptcy Court in Manhattan. Since the Chapter 11 case began, LightSquared’s cash has dwindled by $125 million to about $61 million, Steve Zelin of financial adviser Blackstone Group LP said in support of the lenders.
“I have significant concern as to the LP Debtors’ ability to run a fair and competitive auction,” Zelin said.
A lawsuit filed by Falcone’s investment company, Harbinger Capital Partners LLC, against Charlie Ergen and his Dish Network Corp. shows Falcone wants to keep control of LightSquared, Zelin said. A Dish unit has offered $2.22 billion in cash for LightSquared’s assets. Lenders have said that the offer, valued at as much as $3.5 billion including assumption of contracts, should be the auction’s leading bid.
Industry dynamics also have changed, leaving LightSquared with fewer strategic options than it had at the outset of its case, Zelin said. He cited purchases of spectrum by AT&T Inc., Sprint Corp. and T-Mobile US Inc.
AT&T spent $1.38 billion to buy spectrum from a number of companies in January, Sprint spent $480 million in May and T-Mobile spent $308 million in June, Zelin said. AT&T agreed to buy Leap Wireless in July in a $4 billion deal.
In addition, the Federal Communications Commission “has publicly stated that it intends to increase the supply of spectrum for commercial use in the coming years, the availability of which may negatively impact the demand for and value of” LightSquared’s wireless spectrum, Zelin said.
Lenders have said that prospects for creditors have worsened during LightSquared’s 15 months in bankruptcy as Falcone ignored the $2.22 billion cash offer from Dish’s L-Band Acquisition LLC and admitted wrongdoing in a Securities and Exchange Commission enforcement action.
Falcone and Harbinger agreed Aug. 19 to pay an $18 million fine and Falcone accepted a five-year ban from the securities industry. The SEC accused him of improperly borrowing from the fund and favoring some investors over others.
LightSquared had said it expected competing proposals to reorganize its assets. The company lost the exclusive right to control its reorganization July 15.
The lender group, which owns debt in the LP unit, includes Capital Research & Management Co., Fir Tree Capital Opportunity Master Funds LP, Cyrus Capital Partners LP, Intermarket Corp., UBS AG and SP Special Opportunities LLC, a fund owned by Ergen.
LightSquared, based in Reston, Virginia, filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion.
The case is In re LightSquared Inc., 12-bk-12080, U.S. Bankruptcy Court, Southern District of New York (Manhattan).