LightSquared Wins Approval to Exit Three-Year Bankruptcy

LightSquared Inc. won court permission to exit bankruptcy, ending a three-year ordeal that pitted the wireless venture against its biggest creditor: Dish Network Corp. Chairman Charles Ergen.

U.S. Bankruptcy Judge Shelley Chapman’s ruling Thursday is the culmination of a battle over control of airwaves so valuable they have been compared to “unbuilt beachfront property.”

LightSquared failed in 2012 when U.S. regulators said using the airwaves would interfere with GPS technology. As recently as March 17, a government lawyer told Chapman that the Federal Communications Commission still can’t predict whether it will approve use of the spectrum.

Thursday’s decision followed a trial in which hedge fund investors and Ergen jousted over the value of the airwaves, estimating them at $4.5 billion and up. At one point in 2013, Ergen was the only bidder for the company’s assets, offering $2.22 billion. He later withdrew the offer.

In her decision, Chapman noted that “more than a dozen plans have been announced or proposed” over the course of the bankruptcy, involving “countless hours of human capital.”

Lawyers told the judge the new plan shows how the market has finally come to recognize the value of the company’s spectrum in a world where wireless businesses are booming and airwaves are a finite asset.

New Equity

The plan as approved will give Centerbridge Capital Partners LP, Fortress Investment Group LLC and a unit of JPMorgan Chase & Co. control of most of the company, with Philip Falcone’s Harbinger Capital Partners LLC getting a minority of the new equity. Ergen will be repaid in full and in cash. His fund agreed to withdraw its objection to the plan.

The Reston, Virginia-based company has estimated its worth in past court documents at $4.5 billion to $6.8 billion based on a current business approach, or $9.6 billion to $13 billion using an alternate approach.

The variation depends on different predictions about when the company will get regulatory approval to operate.

“I am excited to get back to work, alongside our world-class leadership team, to the business of deploying our spectrum for the benefit of the American people,” Chief Executive Officer Doug Smith said in a statement after Chapman approved the plan.

Falcone v. Ergen

Falcone founded LightSquared. During the bankruptcy, Harbinger sued Ergen and Englewood, Colorado-based Dish, accusing them of using “improper tactics” such as buying up a large stake in LightSquared debt in order to block other votes on a plan and obtain the company’s airwaves for a below-market price. Even after a trial, differences between the two parties weren’t resolved.

Mediation overseen by another bankruptcy judge also failed to bring about a final resolution. Finally, the company’s other stakeholders stepped in.

“The funds managed to pry Falcone’s and Ergen’s hands off each other’s throats by putting enough cash on the table for Ergen to get his money back more than in full,” Erik Gordon, a law professor at the University of Michigan, said in an e-mail.

The final dispute came down to the airwaves’ value, which hinged in part on whether the company will ever get U.S. government approval to use them.

Value Fight

Such fights are common in bankruptcy, where the value of assets determines how the pie will be carved up for different factions of creditors.

Lawyers told Chapman the new plan shows how the market has finally come to recognize the value of the company’s spectrum in a world where wireless businesses are booming and airwaves are a finite asset.

The judge Thursday cited Ergen’s own testimony about the value of the company’s assets:

“God isn’t making more spectrum,” she quoted the billionaire as saying.

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 show which investors would get equity in the reorganized company.)

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