LightSquared Said to Seek Fortress-Sponsored Financing

Philip Falcone’s LightSquared Inc. may get more than $2 billion in financing sponsored by Fortress Investment Group LLC that would allow him to avoid a sale to Charlie Ergen, a person familiar with the matter said today.

Falcone has been fighting to keep control of LightSquared’s wireless spectrum assets, facing dwindling cash in bankruptcy and a $2.22 billion offer from an entity owned by Ergen, the chairman of Dish Network Corp. Yesterday, a group of lenders that includes an Ergen-owned fund said all other offers to pay for a reorganization had “vaporized.”

JPMorgan Chase & Co. is in talks with lenders to lead $2 billion to $2.5 billion in financing sponsored by Fortress, said the person, who wasn’t authorized to speak publicly and asked not to be identified. Lenders would need to commit by Jan. 8, and a condition for closing is regulatory approval to use some of the company’s wireless spectrum.

Matthew Barr, a bankruptcy lawyer for LightSquared, and Thomas Lauria, a lawyer for the group of lenders that includes Ergen’s fund, didn’t immediately return calls for comment on financing. Michael Tucker, a spokesman for Reston, Virginia-based LightSquared, declined to comment. Bruce Corwin, a spokesman for New York-based Fortress, declined to comment.

The lender group said in papers in U.S. Bankruptcy Court in Manhattan yesterday that the company had no alternatives to Ergen’s offer yet continued to ignore it, behavior the group called “alarming and reckless.”

Shifting Group

That group, which once included Fortress, has shifted during LightSquared’s bankruptcy as new parties have bought the debt.

One of the buyers has been SP Special Opportunities LLC, a fund owned by Ergen, which held $824.3 million of LightSquared debt, according to court papers filed in July. Members also included Capital Research & Management Co., with $331.2 million of the company’s debt, and Cyrus Capital Partners LP, with $134.5 million.

The group, which owns most of the debt in the company’s LightSquared LP unit, agreed yesterday to let the company use cash collateral to survive until it can get court approval of a plan to exit bankruptcy. A Jan. 9 hearing to seek that approval had been delayed as LightSquared sought an alternative to Ergen’s offer.

‘Time Machine’

“The alternatives the debtors wanted to develop during the extended timeline have vaporized,” the lenders said. “Instead of taking action to re-lock-in the only firm offer received for the LP assets, the debtors have inexplicably used the most recent delay to take a time machine back to the summer: the debtors are proposing to formulate from scratch their own refinancing plan.”

Centerbridge Partners LP, a New York-based private-equity firm, was said earlier this month to be teaming with Falcone’s investment vehicle, Harbinger Capital Partners, and Fortress to acquire LightSquared Inc. for $3.3 billion, according to a person familiar with matter.

LightSquared said yesterday that it canceled a planned auction of assets of its Inc. unit, including One Dot Six. U.S. Bank NA and Mast Capital Management LLC, a Boston-based investment adviser, had planned to start an auction for those assets with a bid equal to what the company owed them. LightSquared said it was instead “pursuing an alternative transaction.”

The lenders are “extremely concerned” about LightSquared’s failure to engage with Ergen’s entity, L-Band Acquisition Corp., and “cannot agree to further delay,” they said. Their extension of cash collateral will last until Jan. 31, according to court papers.

Ergen Sued

LightSquared and Harbinger sued Ergen over the way SP bought the debt before making an offer for the wireless company’s assets. They said that Ergen shouldn’t have been able to buy the debt because his two companies, Dish Network Corp. and EchoStar Corp., are direct competitors of LightSquared, a satellite broadband provider.

Harbinger invested about $3 billion in LightSquared.

“The debtors have sued the only party to present an offer for any of the LP debtors’ assets,” the lenders said.

They said LightSquared also has failed to make any progress on regulatory issues or raise enough financing for a stand-alone plan in the past 20 months, while the lenders have borne all of the company’s risks.

LightSquared filed for bankruptcy last year after the Federal Communications Commission blocked its initial proposal to use wireless spectrum. The FCC concluded such use would interfere with navigation gear that relies on the global positioning system.

LightSquared listed assets of $4.48 billion and debt of $2.29 billion in its Chapter 11 filing.

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

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