LightSquared faces continued SPSO opposition as confirmation begins

By Kali Hays

New York, March 9 – LightSquared Inc. senior secured creditor SP Special Opportunities LLC (SPSO) continued to object to its treatment under the company’s proposed plan of reorganization during the first day of its plan confirmation hearing held March 9 at the U.S. Bankruptcy Court for the District of Delaware.

Although LightSquared said it intends to file a further modified plan in the coming days that alters SPSO’s treatment under the plan, representatives of SPSO remained defiant, claiming that the plan is unconfirmable as the bulk of SPSO’s more than $1 billion claim would still become subordinated debt under the proposed plan, which constitutes unfair discrimination.

Specifically, LightSquared’s amendment to the plan will offer a cash-out option to holders of LightSquared LP debt, including SPSO but excluding plan sponsors Centerbridge Partners LP and Fortress Investment Group LLC.

Under the amendment, if an allowed LP lender elects to the cash-out option, it will receive its proportionate share of $400 million in cash along with the remainder of its claim in the form second-lien notes.

Under the previous plan, SPSO was set to receive tranche B second-lien exit term loans in an amount equal to the allowed claim as of the plan effective date.

LightSquared said that it has lined up commitments from “certain parties” to purchase any debt traded in under the cash option at par value.

Representatives of SPSO said the cash option “does nothing except put SPSO just below the threshold of a majority debtholder” if the company were to accept its proportionate share of cash, but refused to elaborate when judge Shelley Chapman inquired as to why SPSO would consider losing its majority debtholder status unsatisfactory.

In addition, the modified plan will make clear that unsecured creditors will receive full cash payment of allowed claims from post-bankruptcy interest, the allowed claim of LP preferred creditors will be increased to $270 million from $240 million and the allowed claim of LightSquared Inc. preferred creditors will be increased to $63 million from $27 million.

In defense of the plan and its revisions, representatives of LightSquared said it is “critical to remember that SPSO is an instrument of a direct competitor” and that “SPSO wins if LightSquared remains in bankruptcy.”

As previously reported, SPSO is owned by Charles W. Ergen, chairman of Dish Network Corp., and was used to purchase more than $1 billion in LightSquared debt.

SPSO said its objection is “not related to competitor status” and it would support a plan if LightSquared agreed to either pay off its debt in full in cash or un-impair its claims and stipulate that SPSO’s debt will be refinanced within six months of the effective date of the plan.

SPSO representatives said that if LightSquared is confident in its valuation, at least $9.6 billion, SPSO would be happy to sell its debt for its full value.

Judge Chapman called this subtle challenge to LightSquared to pay its SPSO debt a “schoolyard tactic” in an attempt to get the company to revise its valuation and said the issue of valuation would be gone over in detail during the course of the trial.

LightSquared representatives went on to say that “every element of pursuing confirmation has been met” and that it will seek confirmation of the modified plan in spite of SPSO’s objection.

“SPSO is willing to do almost anything to win and the only way that Charlie Ergen loses is if this plan is confirmed because LightSquared will again be a direct competitor.”

Plan terms

As previously reported, the company will emerge as New LightSquared LLC and a “Reorganized LightSquared Inc.” will be an operating subsidiary under the current plan.

The plan is based on a plan sponsorship agreement with Harbinger Capital Partners, LLC, Fortress Investment Group LLC, Centerbridge Partners LP and SIG Holdings, with Harbinger receiving 44.45% of equity in New LightSquared.

Upon the effective date of the plan, New LightSquared will issue 26.2% of its new common stock and $68.39 million of series B preferred interests to Fortress, and 8.1% of new common stock and $21.12 million of series B preferred interests to Centerbridge.

In satisfaction of its pre-bankruptcy claims, Harbinger will receive series A preferred interests in an amount equal to its subordinated claims, plus interest, plus $122 million and 44.45% of the new common stock in New LightSquared along with a call option to purchase 3% of new common interests.

As consideration for the reorganized LightSquared entities contributing assets to New LightSquared, the reorganized entities will receive 21.25% of the New LightSquared common stock, $100 million of series C preferred notes, $41 million of series B preferred notes and series A preferred notes equal to the allowed non-subordinated claims held by SIG as of the effective date.

SIG will also receive 100% of the common shares of the reorganized LightSquared.

Other existing preferred equity holders of LightSquared will receive a distribution of series C preferred interests of $27 million.

All claims of MAST Capital Management will be paid in full in cash or be purchased by SIG on or immediately following confirmation of the plan.

Specific treatment of other claims will be as follows:

• Holders of general unsecured claims and other priority claims will receive full cash payment of an allowed claim amount from LightSquared post-bankruptcy interest;

• Holders of other secured claims will receive full cash payment of an allowed claim or delivery of the collateral securing the claim and payment of interest, if any;

• Holders of LightSquared LP preferred equity interests will receive a proportionate share of $270 million of series C preferred stock of New LightSquared;

• Holders of pre-bankruptcy non-subordinated claims will receive a cash payment from SIG for the purchase of those claims, which will be converted into the reorganized exit facility;

• Holders of pre-bankruptcy LightSquared LP facility claims will receive tranche A second-lien exit term loans in a principal amount equal to the holders’ allowed amount as of the plan effective date or elect to receive a partial cash payment of its proportionate share of $400 million in combination with second-lien paper; and

• Holders of all common equity and stock interests will not receive a distribution, and all intercompany claims will be dismissed.

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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