philip falcone

In his two-month tenure since joining LightSquared’s board of directors, hedge fund manager Phil Falcone has not exactly endeared himself to the wireless network company. And now some of its lenders would like him to leave.

According to The Wall Street Journal, the lenders want Phil Falcone to move aside as the company’s public face as a condition to dodge a debt default. He became a member of the board when Sanjiv Ahuja relinquished his CEO job to take over as chairman of the board.

The lenders are speaking with Falcone’s representatives (he is Harbinger Capital Partners LLC’s founder and the main backer for LightSquared), about a potential waiver extension on debt-term violations that will expire on Monday. The discussions have been described as “fluid” and the details of Falcone’s exit are murky.

The lenders are using attorneys from Weil, Gotshal & Manges to negotiate on behalf of  LightSquared’s equity holders.

Should Falcone not agree to move aside from LightSquared’s board, the lenders may back off but the company may end up with a bankruptcy filing. The lenders will use the law firm of Milbank, Tweed, Hadley & McCloy to represent LightSquared should the company go the Chapter 11 route.

On a positive note for Harbinger Capital, its investors would be happy if Falcone steps aside as some of them have sued him over the LightSquared investment. It a major contributor to Harbinger’s bellwether fund tanking 47 percent in 2011.

Falcone has previously said he’s not opposed to bankruptcy. In early April he said that it may be the “best way” for him to keep his control of LightSquared and prevent its creditors from selling assets.

He said, “The rationale for any bankruptcy is to keep my vision where I think creditors want to take control and flip.”

Sprint Ends its Agreement

Earlier this year, LightSquared suffered another setback. Back in March, Sprint Nextel Corporation (NYSE: S) closed its $9 billion agreement with the company after it become clearer that LightSquared’s network would not happen. Sprint was one of 40 partners who had signed with LightSquared. It had hoped to build and license a 4G network to LightSquared; the company would then use it with the infrastructure and launch service.

For its contribution, Sprint would have been allowed to use up to 50 percent of LightSquared’s network capacity for its customers.