LightSquared Judge Lets Trial on Bankruptcy Plan Proceed

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LightSquared Inc., Philip Falcone’s bankrupt broadband venture, will go ahead with a trial next week to seek approval for its reorganization plan, despite 11th-hour disputes over expert testimony and a competing proposal from a creditor.

“We’re going to keep going,” U.S. Bankruptcy Judge Shelley Chapman said at a hearing in Manhattan Wednesday.

LightSquared and its largest creditor, controlled by Dish Network Corp. Chairman Charles Ergen, each told her that the other shouldn’t be allowed to put forward certain testimony from expert witnesses at the trial, set to start March 9. Ergen’s SP Special Opportunities fund owns about $1 billion in LightSquared debt.

The trial on whether LightSquared can execute its reorganization plan is the latest confrontation between Falcone and Ergen in a battle that has mired the company in bankruptcy for close to three years.

The outcome will turn on how experts value the company’s airwaves, which in turn depends on whether it can get regulatory clearance to use them.

“This is a federal court, not a kindergarten,” LightSquared said in court papers. The company accused Ergen’s investment fund of changing its mind about presenting one witness at the last minute in order to get around questions about his expertise in wireless technology.

‘Junk Science’

SP has sought to exclude testimony from three of LightSquared’s proposed experts, calling their analyses of the company “unreliable” and “tantamount to junk science” in court papers.

Several creditors have objected to LightSquared’s plan, including New York-based Solus Alternative Asset Management LP, which last month filed a competing proposal to reorganize the company. The hedge fund sought to delay the trial so creditors could consider its plan.

Chapman said that the hearing won’t be delayed by the competing plan and that next week or later, she will “check back” with Solus to see whether its offer still stands. If so, she will consider whether it’s also confirmable, potentially putting her in the position of being able to choose between two proposals to reorganize the company.

LightSquared sought bankruptcy protection in 2012 after the Federal Communications Commission blocked its service, saying it might interfere with GPS equipment. The company still hasn’t obtained U.S. approval to use its airwaves

LightSquared’s reorganization plan, backed by JPMorgan Chase & Co, Fortress Investment Group LLC, Centerbridge Partners LP, and Faclone’s investment vehicle Harbinger Capital Partners LLC, would value the company at $4.5 billion to $6.8 billion based on the company’s current business approach, or $9.6 billion to $13 billion using an alternate approach.

Inflated Values

Ergen said those values are inflated and the company is really worth only $1.8 billion to $4.4 billion.

Solus and Centaurus Capital LP said the company’s assets are worth more than $10 billion and a lower valuation would sell them short on their equity stake in a reorganized company.

The court should value the assets “in a manner that appropriately reflects the probability that the debtors’ pending (or soon to be modified) requests to modify their valuable spectrum licenses will be granted,” Centaurus said in court papers.

GPS Lawsuits

The plan also gives Harbinger $122 million for handing LightSquared the right to any recovery in its lawsuits against makers of GPS equipment. All such claims have been dismissed, making it “hard to imagine” how they could be worth that much, Centaurus said.

Solus offered an alternative $1 billion loan to fund the wireless company’s operations. The hedge fund said LightSquared’s own plan doesn’t comply with bankruptcy law because it offers stock in a new company to certain investors “on the cheap” without testing the open market.

That would give some investors a potentially valuable asset while discriminating against others, such as itself, Solus said.

LightSquared’s wireless spectrum is “an exceedingly rare asset class, highly prized and, after more extensive infrastructure buildout, likely to have untold business worth,” Solus wrote in a court filing.

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