Poor Phil Falcone. He got married to a trade and was blinded by love until the end, the ultimate sin for a professional.

Falcone’s hedge fund, Harbinger Capital Partners, was the odd-man out in a game of musical chairs that is bankruptcy reorganization. Under the latest bankruptcy exit plan for wireless venture LightSquared, the ambitious passion of Falcone’s eye, the hedge fund will be wiped out of its nearly $2 billion investment, FinAlternatives is reporting.


Falcone’s Harbinger Capital Partners odd-man out in bankruptcy reorganization


LightSquared revealed a new reorganization plan yesterday that is notable not only by who it includes, but who isn’t on the list. Notably, a winner in the bankruptcy process is DISH Network Corp (NASDAQ:DISH) founder Charles Ergen.  Ergen was accused by Harbinger of illegally buying LightSquared debt.  Left alone at the alter is Falcone.

If Ergen votes to approve the new deal, he’ll get new debt and non-voting shares, while other LightSquared creditors would get voting shares in exchange for $500 million in new loans. LightSquared shared a 12.5% stake in the company with Cerberus Capital Management, Fortress Investment Group LLC (NYSE:FIG) and JPMorgan Chase & Co. (NYSE:JPM) sharing a 74% majority voting block.

Ergen violated LightSquared’s debt covenants

The new plan comes in the wake of a federal bankruptcy judge rejecting an earlier reorganization plan that would have been negative to Ergen.  The same judge ruled that Ergen violated LightSquared’s debt covenants which restricted competitors from LightSquare’s capital structure.

The new plan requires Ergen to pony up a $300 million investment, and if he rejects the plan the amount of debt he would receive from the bankruptcy would be determined at the wildcard of a trial.

As previously reported in ValueWalk nearly a month ago, Falcone’s legacy could be at stake.  At that time Harbinger Capital Partners was suing the federal government for alleged breach of contract with Lightsquared, alleged breach of good faith and for what Harbinger claims is the “unconstitutional” taking of private property without just compensation by the government. What was interesting is that the focus of Falcone’s passion didn’t share his viewpoint. Lightsquared apparently doesn’t have the same passion for the lawsuit, as it is not party to the action.

Harbinger’s investment losses using LightSquared’s spectrum

“Harbinger has lost most of its approximately $1.9 billion investment, despite having made that investment in specific reliance on the government’s agreement to permit it to build, deploy, and operate a nationwide broadband network using LightSquared’s spectrum,” Harbinger said in court documents at the time.

Perhaps this was Falcone’s Hail Mary pass that looks like it is landing incomplete.

The ultimate slap in the face of a trader is when they held out on a position until the “wrong” market outlasted the fiscal endurance of the trader.  Once the trader exits the trade is when the market turns around.

The LightSquared concept is interesting and it is a concept that could get legs.  Falcone’s ultimate legacy could be he was right on the long term trade direction but wrong on the timing.