LightSquared inks plan deal with Fortress, JPMorgan, Melody, Harbinger

By Caroline Salls

Pittsburgh, Dec. 26 - LightSquared Inc. requested court approval to make changes to its plan of reorganization after reaching an agreement on a standalone reorganization with Fortress Investment Group LLC, JPMorgan Chase & Co., Melody Capital Advisors, LLC and Harbinger Capital Partners, LLC and its affiliates, according to a Dec. 26 filing with the U.S. Bankruptcy Court for the Southern District of New York.

On Dec. 31, the court approved the disclosure statement for the amended plan. The plan confirmation hearing is scheduled for Jan. 21.

Specifically, LightSquared said the proposed second amended plan calls for $2.5 billion in senior secured exit financing, a $250 million senior secured loan, at least $1.25 billion in new equity contributions, the issuance of new debt and equity instruments, the assumption of liabilities, the satisfaction in full of all allowed claims and allowed equity interests with cash and other consideration and the preservation of value of some of the company's litigation claims for the benefit of LightSquared stakeholders.

The company said the second amended plan constitutes the only all-inclusive restructuring proposal that will leave it with a sustainable capital structure, "stronger and better positioned to avail itself of the tremendous upside value resulting from the approval of the pending spectrum license modification application and able to maximize creditor and stakeholder recoveries to the fullest extent possible."

Plan changes

The changes from the company's first amended plan include the following:

• Upon satisfaction of specified conditions, proceeds from the exit financing, new equity and the reorganized LightSquared senior secured loan will satisfy all allowed claims and allowed equity interests in full through a distribution of cash or other consideration, as applicable;

• Class 5 containing the pre-bankruptcy facility non-subordinated claims is now unimpaired;

• Holders of pre-bankruptcy LP facility non-SP Special Opportunities, LLC claims will be entitled to an equity stake in the new company if class 7A votes to accept the second amended plan; and

• The inclusion of a "toggle" option calling for either the confirmation of the second amended plan, or, to the extent the bankruptcy court does not approve the transactions embodied in the second amended plan, the confirmation of an alternate Chapter 11 plan for the LightSquared debtors.

To fund LightSquared's operations from confirmation of the second amended plan through the plan effective date and to repay in full a previous debtor-in-possession facility, Melody has agreed, subject to negotiation and definitive documentation, to provide up to $285 million in DIP financing.

Restructuring terms

Under the second amended plan:

• A nominee of the new equity contributors will establish a new company;

• The new company will issue $1.5 billion of series A preferred PIK interests, with 15.33% going to holders of pre-bankruptcy preferred units equity interests on account of the cancellation of $230 million of those interests, 13.33% to Fortress on account of its contribution, 36.67% to Melody partially on account of its contribution, 10% to Harbinger on account of its contribution, 20% to reorganized LightSquared Inc. partially on account of an equity interests contribution and 4.67% to others to be identified in exchange for a $70 million new equity contribution;

• The new company will issue class A common interests with the same allocation percentages as the PIK interests.

The new class A common interests will comprise 60% of all new company common interests issued. The new company common interests will be entitled to 100% of the cash flow distributions and/or capital proceeds after satisfaction of the series A PIK preferred interests liquidation preference, which will be the higher of 1.52 times par or par plus accrued at 20%;

• The new company will issue $120 million series B-1 preferred PIK interests to holders of existing LP preferred units equity interests;

• The new company will issue $225 million series B-2 preferred PIK interests to holders of pre-bankruptcy LightSquared Inc. facility subordinated claims;

• The new company will issue class B common interests, with 70% going to holders of the pre-bankruptcy subordinated facility claims and 30% to holders of allowed existing LightSquared common stock. The class B stock will comprise 32% of all common interests issued; and

• The new company will issue class C common interests to reorganized LightSquared partially on account of its equity interests contribution. The class C interests will comprise 8% of all common interests issued, and will be subject to a call option, exercisable by Harbinger in its sole discretion to purchase all of the class C interests for $250 million.

Solicitation information

According to the motion, LightSquared believes that the second amended plan does not require a complete re-solicitation of votes because the changes do not materially adversely affect any holder of a claim or equity interest or change the classification set in the first amended plan in a way that would cause a stakeholder to change its accepting vote.

Under the Dec. 31 order, plan votes are due Jan. 15 and the voting report must be submitted by 4 p.m. ET on Jan. 17.

Effectiveness of the second amended plan is conditioned upon approval by the Federal Communications Commission of the company's license modification applications and grant of related relief, as well as the satisfaction of exit financing conditions.

LightSquared is a Reston, Va.-based wholesale-only 4G-LTE network integrated with satellite coverage. The company filed for bankruptcy on May 14, 2012 under Chapter 11 case number 12-12080.

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