LightSquared Needs More Mediation to Develop Plan

LightSquared Inc., the bankrupt wireless-spectrum owner controlled by hedge-fund founder Philip Falcone, is about to be sent to mediation after failing to complete a reorganization plan in two weeks of talks with creditors.

The tentative global plan pitched to creditors includes a new third-party investor offering “significant” amounts of new capital, Paul Basta, a lawyer representing an independent committee in the case, said at a hearing today in Manhattan bankruptcy court.

“For this to work, everyone is going to have to compromise,” Basta said. “A mediator could help us get over the finish line.”

U.S. Bankruptcy Judge Shelley Chapman, who earlier this month rejected Falcone’s plan for the company to exit bankruptcy, issued a draft of a mediation order today for the parties to review and said she was “prepared to move as quickly as you all are prepared to move.”

Another potential standalone plan could be financed by Fortress Investment Group LLC and JPMorgan Chase & Co., Basta said.

Chapman had said the plan designed by Falcone, the controlling shareholder, was unfair to the LightSquared’s one-time suitor, Dish Network Corp. Chairman and co-founder Charles Ergen. If the parties didn’t agree on new terms, she said she would send them into mediation overseen by U.S. Bankruptcy Judge Robert Drain.

Ergen’s Debt

LightSquared had sought to put Ergen’s $1 billion debt claim behind those of other creditors as it reorganized with $2.5 billion in financing backed by Fortress, JPMorgan and Melody Capital Advisors LLC, leaving Falcone with an equity stake in a new company.

In her May 8 ruling from the bench, Chapman faulted how Ergen acquired his $1 billion claim, and said his behavior warranted marginalizing it. At the same time, she said LightSquared’s plan only moved “debt and cash up and down the capital structure.”

The decision was a setback to Falcone’s goal of getting Reston, Virginia-based LightSquared back on its feet. The company sought bankruptcy protection in 2012 after the Federal Communications Commission blocked its service, saying it might interfere with global positioning system navigation equipment.

Hijacking Reorganization

The company accused billionaire Ergen, 61, of secretly snapping up its debt to hijack the reorganization and get its wireless spectrum at a discount.

U.S. pay-TV growth has peaked as people spend more time watching online video, leaving Englewood, Colorado-based Dish seeking ways to generate more revenue.

Ergen had offered to pay $2.22 billion for LightSquared’s airwaves, only to withdraw the bid just before an auction. Falcone, 51, accused Ergen of trying to game the bankruptcy process to get a lower price and of secretly buying debt that LightSquared rivals weren’t permitted to own.

Chapman said Ergen concealed his identity in buying LightSquared debt and wasn’t credible when he blamed a technical issue for dropping his airwave offer. Ergen’s claim could be put behind those of other creditors on terms to be determined later, she said.

LightSquared listed assets of $4.48 billion and debt of $2.29 billion in its Chapter 11 filing. The proposed plan valued the company at $7.7 billion.

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

(An earlier version of this story was corrected to say mediation was required.)

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