Falcone Fights Ergen for Airwave Assets in LightSquared Trial

Jan 09, 2014 5:14 am ET

Jan. 9 (Bloomberg) -- Philip Falcone’s LightSquared Inc. is set to open a trial accusing Charlie Ergen of improperly snapped up debt in the company to hijack its reorganization and get airwaves worth billions of dollars for Dish Network Corp., even as Dish has said it may withdraw its bid.

LightSquared, the satellite-based wireless provider controlled by Falcone’s Harbinger Capital Partners, is scheduled to go to trial against Ergen today before U.S. Bankruptcy Judge Shelley Chapman in Manhattan. The Reston, Virginia-based company filed for bankruptcy in 2012 after failing to win regulatory approval to use the airwaves.

As recently as Jan. 7, the judge was told Dish might drop its offer because of a technical problem. The Wall Street Journal

reported late yesterday that Dish was indeed planning to walk away, citing a person it didn't name.

Rachel Strickland, a lawyer for Ergen and Dish, and Thomas Lauria, a lawyer for a lender group, didn't immediately return calls seeking comment last night on whether the bid had been dropped.

The trial would pit the two billionaires against each other for control of the assets in a company which LightSquared has said may be worth as much as $10 billion. Creditors may have to choose between Ergen’s plan to bid $2.22 billion for the airwaves at auction and a proposal to let Falcone, 51, keep control of a company that he has already sunk $3 billion into.

“The battle is really Charlie and Phil wrestling for control,” said Erik Gordon, a professor at the University of Michigan’s business and law schools. “In addition to dollars and cents, you’ve got two guys, each guy’s ego is big enough to fill up a room.”

LightSquared and Harbinger sued Ergen, Dish and EchoStar Corp. in August. Dish is a satellite-TV provider, while EchoStar makes satellite-broadcast equipment. Ergen, the 60-year-old chairman of both Englewood, Colorado-based companies, wants to diversify by moving into wireless, Harbinger said in court papers.

Secret Purchases

Ergen is accused of surreptitiously buying LightSquared debt and blocking attempts to reveal who was behind the purchases. He knew LightSquared’s credit agreement prohibited competitors such as Dish and EchoStar from owning the debt, according to the plaintiffs.

According to Ergen, the purchases were smart and the entity that bought the debt, SP Special Opportunities LLC, is distinct from Dish and EchoStar. He has said he made no “false representations” about the purchases and has called the suit an attempt to derail his offer to buy LightSquared’s assets.

The outcome may determine whether Ergen’s claim on about $1 billion in LightSquared debt will be disallowed. Ergen is now considering dropping his bid because of a technical matter, a lawyer for a creditor group has said.

Strickland declined earlier to comment on the trial. Alan Stone, a lawyer for LightSquared, also wouldn’t comment. David Friedman, a lawyer for Harbinger, didn’t return a call seeking comment.

Earlier Attempts

This isn’t Ergen’s first shopping trip in bankruptcy court.

In 2008, Dish sought to buy spectrum of the satellite communications company DBSD North America. After DBSD filed for bankruptcy the following year, Dish bought enough of the company’s debt to force a sale. The bankruptcy court ruled that Dish hadn’t acted in good faith, and the company resolved the situation by raising its offer.

Harbinger has compared Ergen’s strategy in LightSquared to the DBSD case, saying he bought debt to block rival bankruptcy plans.

“Ergen has not hesitated to violate agreements, make misrepresentations, abuse his position as a creditor, or engage in other inequitable conduct,” lawyers for Harbinger wrote in court papers.

LightSquared filed for bankruptcy in May 2012, listing assets of $4.48 billion and debt of $2.29 billion, after the Federal Communications Commission blocked the company’s service, saying it could interfere with civilian and military global- positioning-system navigation equipment.

Lender Group

SP Special Opportunities is part of a group of lenders that owns around $1.4 billion of $1.7 billion in debt issued by LightSquared’s main “LP” unit and backs Ergen’s proposal. Under the plan, LightSquared could satisfy its debts while Ergen addressed the technical and political barriers to regulatory approval.

LightSquared has said it should be the one to maintain control of the assets. Its plan includes $2.5 billion in financing backed by Fortress Investment Group LLC, JPMorgan Chase & Co. and Melody Capital Advisors LLC, and would require the company to get regulatory approval before reorganizing as a stand-alone business.

During the bankruptcy, regulatory developments have been kept confidential and discussed in the judge’s chambers.

FCC Approval

On Jan. 2, LightSquared and Harbinger filed court papers expressing confidence that they would get FCC approval. Less than a week later, Lauria told Chapman that Dish had identified a technical glitch that may impair the spectrum’s usefulness.

Strickland, the lawyer for Dish, confirmed to the judge that the company was considering backing out based partly on technical concerns.

Shares of Dish have climbed about 45 percent since May, when it was reported that Ergen was interested in acquiring LightSquared’s assets.

Gordon, the Michigan professor, said one possible resolution would be for Ergen to vote for Falcone’s plan and let him keep control of the spectrum, in exchange for Ergen not getting $1 billion in debt wiped out.

“You can’t expect one of them to walk away a total loser,” Gordon said.

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

--Editors: Andrew Dunn, Michael Hytha