LightSquared’s assets should be vetted by the market to realise their value, according to a group of lenders representing US$1.7bn of the US satellite/terrestrial venture’s debt.
The group of lenders, whose debt is secured by the company’s main…
LightSquared’s assets should be vetted by the market to realise their value, according to a group of lenders representing US$1.7bn of the US satellite/terrestrial venture’s debt.
The group of lenders, whose debt is secured by the company’s main operating subsidiary LightSquared LP, criticised the “high risk approach” being taken by Philip Falcone, who owns the majority of the equity through his Harbinger Capital Partners hedge fund.
Falcone, whose exclusive right to file the venture’s chapter 11 bankruptcy plan ends on 11 September, is negotiating with the FCC to clear regulatory obstacles that are prohibiting the launch of LightSquared’s 4G network. A court hearing has been arranged for next week to decide whether to extend the company’s exclusivity period for filing its own bankruptcy plan.
However, in court filings yesterday, the LP lenders accused Falcone of using this exclusivity “to hold the lenders hostage to his high stakes gamble”.
The ad hoc group said: “Having nothing to lose, Mr Falcone wants to pursue a high-risk, high return strategy that is pinned on first obtaining a reversal of the FCC’s decision to suspend the debtors’ authority to use their spectrum terrestrially, and then somehow funding and building out a network.
“Not surprisingly, the prepetition LP lenders favour a more conservative approach that would realise value through a third-party transaction or otherwise force Mr Falcone to put his money where his mouth is: He has told the prepetition LP lenders that the debtors’ business in its current state is worth multiples of their debt; if so, then given the debtors’ current inability to generate income, logic dictates vetting their assets to the market.”
The lenders explained that such a move would either bring a third party to the surface to monetise LightSquared’s value, or allow Falcone to acquire the assets at a “steep discount” by simply paying off the lenders.
In a separate filing, the LP lenders opposed LightSquared’s plan to issue US$6m in bonuses to its four top executives.
Under this proposed bonus plan, these executives would receive up to 285% of their base salaries as cash bonuses if LightSquared exits bankruptcy by the end of 2013. But they would get at least 235% regardless of how long it takes to exit, warned the LP lenders.
According to the creditors, the plan fails to provide incentives for initiating and conducting a reasonable marketing process. In addition, they claimed it reflects an “unreasonably long” timeframe to exit bankruptcy, and encourages management to preserve existing capital structure.
