LightSquared plan sponsor Harbinger denied removal of LP lender claim

By Kali Hays

New York, Oct. 30 – LightSquared Inc. equityholder Harbinger Capital Partners, LLC received a denial of its motion to expunge the guaranteed claim of LightSquared LP Lenders Thursday, according a bench opinion from judge Shelley Chapman of the U.S. Bankruptcy Court for the southern District of New York.

As previously reported, Harbinger filed a reorganization plan for the company in competition with a reorganization plan proposed by an informal group of LightSquared LP lenders.

Confirmation of Harbinger’s plan is conditioned upon the court expunging the LP lender claim or estimating the claim at zero.

Harbinger argued that as the LP lender claim will be “paid in full” under its amended plan through a proposed surrender of 100% of its equity interest in LightSquared GP and LightSquared LP to the LP lenders, a value it says exceeds that of the claim, the claim should be removed.

The LP lenders objected to the Harbinger plan Oct. 8 claiming that Harbinger “never once has been willing to back up its value assertions” though it claims “the collateral under the prepetition LP facility is worth several times the amount of the prepetition LP facility claims.”

“Instead, through its plan, Harbinger would leave the LP lenders stranded with an indirect ownership of an LP debtor ‘business’ that would be a business in name only – it would have no business plan; it would have no strategy to gain regulatory authority to make use of its spectrum; it would have no financing or liquidity; it would have no management, systems, facilities or employees; and it would face multiple litigations with its former parent and Harbinger,” the objection stated.

Judge Chapman supported the LP lenders objection based on the fact that “the value of such equity interests has not been monetized, or even determined, and the plan has not yet been confirmed” and said that “there is no basis to expunge the guaranty claim.”

“Moreover, should the LP lenders receive the equity interests of LightSquared GP and LightSquared LP as proposed by Harbinger, there are numerous risks and uncertainties related to the value of such equity. Those risks are properly borne by equity holders, not secured lenders,” the opinion stated.

Judge Chapman went on to say that if the value Harbinger is offering to the LP lenders is in fact sufficient to pay the LP lenders’ claim “it could simply allow the claim in the plan in its full face amount” instead of “inappropriately shifting downside risk to secured creditors that is properly borne by equity.”

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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