LightSquared Bankruptcy: An Opportunity For Distressed Debt Investors?

Updated on

lightsquared logo

A group of banks and financial institutions have reiterated their desire to go after Phil Falcone and his company, Harbinger Partners Capital, for a pre-bankruptcy loan they extended to broadband company, LightSquared Inc. The lenders alleged in court papers that Falcone and Harbinger, who indirectly owes more than 90% of the outstanding common stock of LightSquared, misused its control of the broadband company. The lenders, composed of Appaloosa Management L.P., Capital Research and Management Company, Cyrus Capital Partners, L.P., Fortress Investment Group LLC (NYSE:FIG), Knighthead Capital Management, L.L.C., Redwood Capital Management, LLC, Silver Point Capital, L.P., and Solus Alternative Asset Management LP, formed an ad hoc committee representing other secured lenders. The ad hoc committee sought authority to file a lawsuit and pursue claims against Falcone and Harbinger.

LightSquared, one of the first companies to offer mobile satellite services in North America, sought protection under Chapter 11 in May 2012 in order to, among other things, give it time to extend the maturity of a $320 million secured loan the company used to finance its 4G LTE open wireless broadband network. LightSquared is indirectly owned by Phil Falcone’s Harbinger.  When the company delivered its first-day petition to the U.S. Bankruptcy Court in Manhattan, it disclosed that Harbinger indirectly owned approximately 96% of its outstanding common stock. LightSquared Inc. has issued 91,878,629 shares of common stock to a subsidiary of Harbinger, and 3,387,916 shares to SK Telecom Co., Ltd. (NYSE:SKM). The company also said it had $4.48 billion in assets and $2.29 billion in liabilities as of Feb. 29, 2012. In addition to the $320 million secured loan obtained by the parent company, a LightSquared unit also obtained a $1.5 billion loan pre-bankruptcy.  At the end of the November 2012 operating period, LightSquared revealed it still is illiquid with $211 million in current assets and $2.1 billion in current liabilities.

Gates Cap Management Reduces Risk After Rare Down Year

Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More

Established in 1985, LightSquared began to develop its 4G LTE wireless broadband network in 2010 and has already invested more than $4 billion to the project. The project was opposed by the Global Positioning System (GPS) industry, complaining that LightSquared’s terrestrial base stations may cause widespread overload interference to GPS receivers and other GPS devices.

The latest legal battle over LightSquared’s pre-bankruptcy debt is in addition to the company’s difficulty in obtaining approvals for its 4G LTE network from the GPS industry and the Federal Communications Commission. In response to the Bankruptcy Court request, Harbinger said the ad hoc committee of secured lenders do not have a standing to pursue the claims because they can be repaid the money owed by LightSquared as the company is valued more than its debts, at as much as $7 to $12 billion. In addition to the Bankruptcy Court dispute, Harbinger Capital and Falcone are also facing suits filed by the U.S. Securities and Exchange Commission for allegedly defrauding investors.

LightSquared’s saga is typical of a bankruptcy case where lenders are trying to throw in their force so that they can regain what they lost. LightSquared’s future though lies in the feasibility of its breakthrough satellite network services, one that has been economically and politically difficult to push through in the broadband industry.


Subscribe to ValueWalk!

Get updates on the latest posts and more from ValueWalk straight to your inbox.