Ergen Fund Objects to LightSquared Reorganization Plan

LightSquared Inc.’s plan to exit bankruptcy shouldn’t be allowed because it gives a fund linked with Dish Network Corp. Chairman Charles Ergen two “worthless” options, singling it out for treatment that is much worse than other creditors, the fund said.

LightSquared, a wireless broadband provider, filed for bankruptcy in May 2012 after failing to get regulatory approval to operate. A disclosure statement laying out the terms of its reorganization plan is scheduled to go before U.S. Bankruptcy Judge Shelley Chapman in Manhattan for her approval Feb. 24.

Under the proposal, LightSquared would emerge as a standalone company worth $7.7 billion. Also, an investment fund controlled by Ergen, who at one point offered to buy LightSquared airwaves for $2.2 billion, would suffer worse treatment if it opposes the plan than if it votes in favor.

Dish, the second-biggest U.S. satellite-TV provider, has been piling up $5 billion in wireless-airwave licenses, a useful asset as the company evaluates its future amid a wave of merger activity in the phone and media industries. Ergen has sought a partner to help him branch out into wireless services, a potential area of growth as the TV business slows.

Ergen’s fund, SP Special Opportunities LLC, said in a filing yesterday that Chapman shouldn’t allow the plan to go to creditors for a vote because it treats the fund in “stark contrast” to other creditors, many of whom will be repaid in cash. LightSquared has said SPSO acquired debt in the company in violation of terms that bar a rival such as Ergen’s satellite-TV business from investing.

LightSquared, based Reston, Virginia, has “premised its entire plan on SPSO’s being guilty until proven innocent,” SPSO said, referring to the lawsuit in which LightSquared is seeking to put SPSO at the back of the line for repayment.

Falcone’s Fund

The plan would let Philip Falcone’s investment fund, Harbinger Capital Partners LLC, retain an equity stake in a new company. It replaces earlier competing proposals to break up the company by selling its most valuable airwaves to another fund, also controlled by Ergen.

If SPSO votes in favor of the plan, its $1.06 billion claim in the bankruptcy will be secured, coming behind first- and second-lien claims on the company’s assets. If the fund votes against it, the claim would be unsecured, according to the disclosure statement.

SPSO called both options “worthless” because at best its claim would still come in behind $2.2 billion or even $3.2 billion in other debt. The bankruptcy code’s rules bar LightSquared from singling SPSO out for different treatment, and soliciting creditors’ votes on this plan “would constitute a waste of the meager remaining resources” the bankruptcy estate has, SPSO said.

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

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