Taking aim at a group of lenders who have raised ‘red flags’ about alleged insider loans received by Chapter 11 cases and wireless company LightSquareD , Harbinger Capital Partners, owned by Phil Falcone, has said the red flags are, in fact, red herrings.
Harbinger claims that the lender group is attempting to gain an upper hand in the bankruptcy proceedings, and its restructuring by adopting dilatory tactics that would extend LightSquareD’s losses and bleed its cash.
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LightSquareD is currently equity-controlled by Falcone and his Harbinger hedge fund, and went into bankruptcy after its wireless license was revoked by the FCC, as its network was thought to interfere with GPS systems.
Lawyers for LightSqareD, in a filing in U.S. Bankruptcy Court, said, “allegations, glaring inconsistencies, and misstatements (and hypocrisy) upon which ‘red flags’ are based, support Harbinger’s view that the [lender group] is attempting to conduct [an investigation] to embarrass and harass Harbinger, and to gain leverage in these cases, which is improper.”
The lender group has sought access to Harbinger’s books and various documents, which it has refused to provide, and petitioned the bankruptcy judge to deny the request.
The lender group is owed $1.1 billion by the company, and have a grouse with a supposed “insider” loan advanced by a group they call the “Inc.” lenders. LightSquareD owes only $320 million to the Inc. lenders – the interesting part is that these loans are secured by leases on the wireless spectrum, and on equity interest on that spectrum. The Inc. lenders were originally Harbinger and UBS, but parts of the loans changed hands over the years. It may be noted that the wireless spectrum is very valuable and is of special interest to Falcone, who has been a major advocate of setting up a national high-speed network.
A crucial defense adopted by the company is the fact that UBS AG (USA) (NYSE:UBS) was a part of the original loan arrangement; hence it cannot be called an insider loan.
On the other hand the lender group is seeking to invoke a bankruptcy provision that allows “preference transfers” made to insiders in the one year preceding bankruptcy to be reversed.