US satellite/terrestrial LTE venture LightSquared has filed for voluntary reorganisation under Chapter 11 bankruptcy protection, after talks with creditors collapsed on 14 May.
The company said the move will give it more time to remove regulatory…
US satellite/terrestrial LTE venture LightSquared has filed for voluntary reorganisation under Chapter 11 bankruptcy protection, after talks with creditors collapsed on 14 May.
The company said the move will give it more time to remove regulatory obstacles currently blocking it from launching a nationwide 4G wireless network, which it believes could take up to two years to resolve.
“The voluntary Chapter 11 filing is intended to give LightSquared sufficient breathing room to continue working through the regulatory process that will allow us to build our 4G wireless network,” said CFO Marc Montagner in a statement.
“All of our efforts are focused on concluding this process in an efficient and successful manner.”
In a filing with the US Bankruptcy Court for the Southern District of New York, LightSquared listed US$4.48bn in assets and US$2.29bn in liabilities.
Its debt includes US$1.7bn outstanding under a first lien loan with UBS and Wilmington Trust FSB as agents, and US$322.3m left to pay on a term loan with US Bank NA. Listed among its largest unsecured creditors are manufacturer Boeing Satellite Systems, which is owed US$7.5m, and handset vendor Alcatel-Lucent, owed US$7.3m.
The group claimed its current mobile satellite business generates around US$30m a year, providing services to approximately 300,000 end users. It also said it had 168 employees following a recent 50% headcount cut.
Approximately 96% of the venture’s outstanding common stock is indirectly owned by its main financial backer Harbinger Capital Partners, the hedge fund headed by Philip Falcone.
LightSquared’s filing said it had issued 91,878,629 shares of common stock to HGW US, an indirect wholly-owned subsidiary of Harbinger, and 3,387,916 shares to South Korea’s SK Telecom. In September 2010, an SK Telecom spokesperson was citing confirming talks with LightSquared about a possible US$100m investment. The company was unable to comment before the press deadline.
Milbank, Tweed, Hadley & McCloy is LightSquared’s general bankruptcy counsel, while it is also engaging Kurtzman Carson Consultants as claims and noticing agent. White & Case is legal counsel to the ad hoc committee of first lien lenders.
Restructuring hopes
Harbinger has reportedly invested at least US$3bn into LightSquared. However, all may not be lost for the embattled hedge fund, whose main portfolio for LightSquared lost 47% of its value in 2011, predominantly due to writedowns on the venture.
When Falcone told reporters back in April that he was considering filing for bankruptcy protection, he was cited claiming that the move would not necessarily wipe out all of its shareholders. The reason being the inherent value Falcone still sees in LightSquared’s spectrum holdings, despite the GPS interference issues that are blocking its wireless network, which would remain whether or not the group entered bankruptcy.
Among LightSquared’s first lien lenders are distressed asset specialist David Tepper, and hedge funds Fortress Investment Group, Knighthead Capital Management, Redwood Capital Management and Capital Research & Management Company.
These creditors had originally given Harbinger until 30 April to re-negotiate the debt and avoid defaulting. This was then extended to 7 May before the final 14 May deadline. Reports suggest the lenders had also called for Falcone to step down from LightSquared’s board.
But, after filing for bankruptcy protection, the company insisted its current management team will continue to lead it through the process.
Indeed, activist investor Carl Icahn, who had been seen as the main proponent to calls for Falcone to step down, reportedly sold his US$250m of LightSquared debt only weeks before it entered bankruptcy protection.
Icahn sold the debt for around 60 cents on the dollar, a significant profit compared with the 40 cents on the dollar price he paid only months before, according to US-based reports.
Dish in the wings?
Meanwhile, industry spectators have pointed to apparent links between investment firm Sound Point Capital, the reported buyer of Icahn’s debt, and Charlie Ergen, the chairman of US satellite TV provider Dish Network.
Sound Point Capital was founded in 2009 by investment banker Stephen Ketchum, who reports explain has previously worked with Dish.
The New York Post claimed on 8 May that, in addition to Icahn’s holding, Ergen had quietly acquired a further US$100m of LightSquared debt, bringing his total to around US$350m. Rumours that a strategic player might be in the frame helped push the debt to trade at nearly 70 cents on the dollar at one point, added the report.
Neither party was able to comment on the speculation.
Ergen already has a reputation for buying spectrum assets out of bankruptcy. Dish’s current spectrum holdings are derived from assets held by mobile satellite operators TerreStar Networks and DBSD North America, both of which were acquired separately out of bankruptcy protection last year. Dish is aiming to launch a terrestrial-only wireless broadband network in the US under a proposal also being reviewed by the FCC.
However, unlike Dish’s spectrum, the frequencies LightSquared plans to use to deploy its own terrestrial network are plagued with interference issues. LightSquared is currently prohibited from launching the network commercially because its spectrum interferes with GPS technology, and the venture is still searching for a workaround that would allow it to provide services in some other form.
To that end, some analysts have questioned why Ergen would seek to invest in LightSquared and have downplayed the rumours.
