LightSquared lenders eye contempt finding, enforcement of DIP order

By Caroline Salls

Pittsburgh, Jan. 7 - Two LightSquared Inc. non-insider lenders asked the U.S. Bankruptcy Court for the Southern District of New York to hold the LightSquared debtors, Harbinger Capital, LLC, JPMorgan Chase & Co., Melody Capital Advisors, LLC and Fortress Investment Group LLC in civil contempt for violating the existing debtor-in-possession financing order and to enforce the existing DIP order, according to a Monday court filing.

The non-insider lender parties are U.S. Bank NA and MAST Capital Management, LLC.

U.S. Bank and MAST said they were required to file the contempt motion as a result of the debtors' deliberate decision to violate the existing DIP order by filing a supplemental DIP financing motion and subsequently refusing to withdraw that motion.

According to the contempt motion, the supplemental DIP financing motion impermissibly seeks approval for LightSquared to obtain new financing in connection with two recently filed plans of reorganization "on terms that are blatant violations" of the existing DIP order.

The non-insider lender parties said the LightSquared debtors' violation of the existing order "was accomplished with the knowledge, support and assistance of the other contempt parties," who are plan support parties under the new plans and/or would be lenders under the supplemental DIP facilities, the motion said.

New financing limitations

U.S. Bank and MAST said the existing financing order clearly establishes limitations on the conditions under which LightSquared may seek new DIP financing.

Specifically, the non-insider lenders parties said the existing order expressly prohibits the debtors from seeking new DIP financing or unauthorized use of the DIP collateral unless the existing obligations are first paid in full in cash.

Also under the existing order, the lenders said the LightSquared debtors may not seek or consent to a priority claim for any administrative expense against any of the existing DIP loan obligors that is equal or senior to the existing obligations or any lien on any of the DIP collateral or pre-bankruptcy collateral with priority equal or superior to those liens.

Since the existing obligations have not yet been and are not expected to be paid in full in cash from the proceeds of the new DIP financings, the non-insider lender parties said the debtors' decision to file the supplemental motion was impermissible under the existing order.

In addition, U.S. Bank and MAST said the supplemental DIP financing motion seeks to grant the lenders under the LightSquared Inc./One Dot Six DIP facility security interests that would prime the security interests and liens securing the pre-bankruptcy obligations, and the lenders under both the comprehensive DIP facility and the LightSquared Inc./One Dot Six DIP facility superpriority administrative expense claims that are senior to the pre-bankruptcy obligations.

A hearing is scheduled for Jan. 21.

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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