LightSquared’s hedge fund owner has launched a multibillion dollar lawsuit against satellite TV mogul Charles Ergen as the battle to control the US wireless venture comes to a head.
Harbinger Capital Partners is seeking more than US$4bn in…
LightSquared’s hedge fund owner has launched a multibillion dollar lawsuit against satellite TV mogul Charles Ergen as the battle to control the US wireless venture comes to a head.
Harbinger Capital Partners is seeking more than US$4bn in compensation and damages from Ergen and his co-defendants, accusing him of colluding with another hedge fund called Sound Point to become the largest holder of LightSquared’s senior debt during its Chapter 11 bankruptcy.
In its complaint, Harbinger said Sound Point’s ties with Ergen, who owns US DTH giant Dish Network, made it ineligible to buy the debt because LightSquared’s credit agreement prohibits loan trades by strategic competitors.
It argued that these debt purchases have improperly given Ergen leverage for the separate “low-ball, bad-faith” US$2.2bn bid he made for the venture’s spectrum, which was offered by investment vehicle LBAC.
LBAC is also a defendant in the case, as well as Dish and its sister company EchoStar. Also listed are Sound Point, its managing partner Stephen Ketchum, and various investment vehicles used by the fund such as SP Special Opportunities.
Harbinger said: “As defendants were well aware, Sound Point’s representations that it was an ‘eligible assignee’ were false. Under the relevant contractual definitions – intended to protect LightSquared and Harbinger from interference by competitors in the company’s capital structure – the term ‘eligible assignee’ excludes LightSquared’s competitors, including Dish and EchoStar, as well as any entity that they directly or indirectly control.
“Because Dish and EchoStar unquestionably control each and every activity of Sound Point, it was not an ‘eligible assignee,’ and was prohibited from purchasing the loan debt. Its written representations to the contrary were false and misleading.”
Harbinger claimed Sound Point deliberately concealed its connection to Ergen and, had the group known of these ties, it would have instructed administrative agent UBS to block the trades.
Willkie Farr & Gallagher, the firm representing SP Special Opportunities, which it said conducted trades in LightSquared’s debt and is controlled solely by Ergen, denied the claims.
In an emailed statement the law firm said: “The Harbinger complaint is without merit and is full of mischaracterisations and factual inaccuracies. All trades relating to LightSquared bank debt were permitted under the terms of LightSquared’s credit agreement.”
A spokesman for Dish also said it finds the complaint to be without merit and “will defend ourselves vigorously”.
Strategic debt trades
The lawsuit also accused Ergen of impeding efforts to restructure LightSquared by being slow to close certain trades during Harbinger’s now expired exclusivity period, in which creditors were not entitled to propose their own plan to exit Chapter 11. It said the so-called hung trades also affected the hedge fund’s ability to arrange billions of dollars in exit financing with Jefferies.
According to Harbinger, Sound Point induced Jefferies to enter “back-to-back” transactions with other investment funds, with the bank as the middleman and it as the ultimate buyer. It alleged that Sound Point subsequently refused to close the second leg of these transactions, leaving Jefferies exposed to more than US$160m in unclosed trades.
“That deliberate tortious interference with Harbinger’s relationship with Jefferies created a significant additional road block to Harbinger’s obtaining exit financing from Jefferies on the original terms and time frame that both Harbinger and Jefferies had contemplated,” said Harbinger.
An ad hoc group of LightSquared’s senior lenders called for a sale of its main assets in July after the company lost its exclusive right to control the bankruptcy. An auction is scheduled in December, although the lawsuit risks disrupting these plans.
LightSquared’s main value is seen as deriving from its 46 MHz of L-Band MSS spectrum, however, the company filed for Chapter 11 protection last year when some of these frequencies were found to interfere with GPS technology.
Whereas LightSquared’s lenders seek to test the market for these assets, with Ergen as the ‘stalking horse bidder’, Harbinger aims to buy time to gain regulatory clearance for swapping the afflicted spectrum with airwaves held by the US government.
Kasowitz, Benson, Torres & Friedman is representing Harbinger and its subsidiaries in the lawsuit.
