LightSquared Bankruptcy Debt Doubles as FCC Weighs Wireless OK

The goal of bankruptcy law is to help failing companies dig themselves out of debt and start anew.

That might be news to investors poised to bring LightSquared Inc. out of Chapter 11. It’ll have around twice the debt it went in with and still no authorization to conduct its core business: running wireless networks.

Since a judge approved its exit financing last month, getting out of bankruptcy now just hinges on the Federal Communications Commission giving the nod to transfer LightSquared’s spectrum license to its new owners: JPMorgan Chase & Co., Fortress Investment Group LLC and Centerbridge Partners LP. But it lacks the one thing that will be the biggest factor in whether it can survive outside a court’s protection -- FCC approval to operate its satellite-based wireless network.

LightSquared “is well-positioned to execute on its plans as it leaves bankruptcy,” said Ashley Durmer, an external spokeswoman for the company, when asked if it can hang on until the FCC gives a go-ahead for operating the network.

The FCC has no deadline to decide on the use of the spectrum, and the Justice Department has asked for time to vet foreign interests in the new owndership structure, leaving it unclear when the license transfer may be decided. Mark Wigfield, a spokesman for the regulator, declined to comment.

Philip Falcone, who founded the Reston, Virginia-based company and still owns shares, Centerbridge lawyer Susanne Clark and Fortress spokesman Gordon Runte didn’t immediately return requests for comment. Brian Marchiony, a JPMorgan spokesman, declined to comment.

GPS Interference

The good news was that none of its industry rivals filed objections to the license transfer. Getting them to also drop their objections to operating the network will be key -- their concerns that the signals would interfere with GPS equipment led to the FCC blocking Falcone’s bid to start the network originally and the 2012 bankruptcy. Since then, it’s hemorrhaged almost $2.3 billion. Loans that totaled $1.9 billion three years ago rose to nearly $3.7 billion by June. And the company loses money every minute it waits to put the airwaves to use and compete with the likes of AT&T Inc.

LightSquared has been working hard to convince competitors its signals won’t interfere with their networks. It’s spent six times as much on legal, regulatory and lobbying efforts than on research and development since 2012. It’s had some success, recently telling a Manhattan judge that it’s beginning “constructive dialog” with Trimble Navigation Ltd., which sells location-based systems for agriculture and engineering, about whether LightSquared can safely use its spectrum.

‘Non-Existent Business’

The fiercest critic of the company’s bankruptcy refinancing is also a savvy player in the satellite game: Dish Network Corp. co-founder Charles Ergen. He was LightSquared’s biggest creditor and managed to get all his money back. LightSquared, with unused licenses and monthly revenue of less than $1.5 million, can’t handle its debt, in his view.

“Bankruptcy is often used to reorganize over-leveraged businesses with strong fundamentals,” he told the judge. “The debtors propose to turn that purpose on its head by using a bankruptcy plan to pile additional leverage onto a non-existent business.”

Bob Toevs, a spokesman for Dish, declined to comment.

Some preliminary opinions are in. LightSquared still faces “formidable” challenges in using its spectrum without affecting users of global positioning systems, GPS Innovation Alliance, an industry group, said in a statement.

The group noted that the U.S. Defense and Transportation departments have said in the past that the company’s proposals have “significant potential” to interfere with GPS.

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

Before it's here, it's on the Bloomberg Terminal. LEARN MORE