LightSquared’s lenders and Harbinger Capital Partners, its hedge fund owner, have been given more time to negotiate the release of documents that some of its creditors suspect could detail insider loans.
Judge Shelley Chapman, who is overseeing…
LightSquared’s lenders and Harbinger Capital Partners, its hedge fund owner, have been given more time to negotiate the release of documents that some of its creditors suspect could detail insider loans.
Judge Shelley Chapman, who is overseeing LightSquared’s bankruptcy, yesterday extended the so-called ‘document discovery’ deadline to 28 September, from 11 September. This gives both parties more time to determine which documents Harbinger should hand over to those lenders investigating the hedge fund’s transactions.
These lenders, which represent US$1.08bn of debt secured by LightSquared LP, the satellite/terrestrial venture’s main operating subsidiary, are concerned about a loan that was extended by Harbinger to the venture’s holding company, LightSquared Inc.
This loan, reportedly worth US$279m, was originally unsecured when it was issued in July 2011, but appeared to become secured on 23 August with “no consideration provided by Harbinger for such liens”, an ad hoc secured group of LightSquared LP lenders said in court documents. In addition, the lenders pointed to how this loan bears 15% interest, despite what it describes as the “favourable interest environment at the time”.
Disputing the claims, Harbinger reportedly told the court hearing yesterday that US$80m of this loan came from UBS, the agent bank that acted as a third party, and that parts of the debt were later sold off to Fortress Investment Group and Mast Capital Management. In addition, Harbinger claimed the liens were granted in return for US$15m of additional loans, according to court reports.
Therefore, Harbinger believes an investigation into its trading would not be worth the cost or disruption it would cause to LightSquared’s Chapter 11 bankruptcy process.
Harbinger’s latest row with debtors is significant because, if the loan constitutes as an insider transaction, LightSquared LP lenders could ask for it to be treated as equity. This could potentially move financial clout away from LightSquared Inc creditors to other lenders.
When LightSquared filed for voluntary Chapter 11 bankruptcy protection back in May this year, Harbinger sought to leverage on the perceived value of the venture’s spectrum assets to retain control. However, this value is predominantly linked to how successful LightSquared’s backroom negotiations are with the FCC. The regulator is currently prohibiting the commercial deployment of the venture’s services because its frequencies interfere with GPS technology. But Harbinger is hopeful of finding a resolution, such as a spectrum swap, and plans to use the bankruptcy process to keep creditors at bay while it tackles LightSquared’s regulatory obstacles.
