LightSquared lenders seek approval to conduct auction for assets

By Caroline Salls

Pittsburgh, Aug. 28 - An independent informal group of LightSquared LP secured lenders asked the U.S. Bankruptcy Court for the Southern District of New York for permission to conduct an auction for some of the assets of LightSquared and some of its affiliated debtors, according to an Aug. 28 court filing.

As alternatives to the auction, the lender group said the court should condition the debtors' continued powers as debtors-in-possession on the appointment of an independent committee of their board to conduct an auction and complete the LightSquared asset sale or order appointment of a trustee to allow completion of the sale.

Under the proposed first alternative, the members of the independent board committee would be subject to the approval of the informal lender group.

Company strategy

Since the filing of the Chapter 11 cases over a year ago, the lenders said the LightSquared debtors "have pursued a single path to the exclusion of all others, maintaining that the only way to proceed was to pursue a highly uncertain resolution of the many regulatory hurdles they face, and that a sale of their assets would be impossible or inadvisable until they solved their regulatory problems."

However, the informal group said the debtors' strategy has not advanced.

Specifically, the lenders said the LightSquared debtors have not obtained the regulatory approval required to launch their planned network, they lack financing or a partner necessary to build out the network even if they did obtain regulatory approval and they continue to impose on creditors the entire risk of an adverse outcome for any of the multiple contingencies that remain.

In addition, the lenders said the number of potential strategic purchasers for the debtors' assets might be diminishing in light of market developments.

According to the motion, controlling equityholder Harbinger Capital Partners and some of its affiliates admitted wrongdoing and agreed to incur significant penalties to resolve Securities and Exchange Commission enforcement actions against them, and Harbinger has started to roll out its long-threatened litigation end-game strategy by suing the GPS industry.

The informal group said this tactic is sure to have a chilling effect on the LightSquared debtors' current efforts before the Federal Communications Commission to obtain approval of their applications.

"It is now completely clear that pursuing a plan conditioned on regulatory approval would ensure that these cases are not concluded for months, if at all," the lenders said.

"The LP debtors' estates cannot afford to continue playing out Harbinger's option.

"The LP debtors will effectively run out of cash at the end of the year, and the risks associated with attempting to buy more time by heaping more debt on the LP debtors' balance sheet are prohibitive."

L-Band offer

The lenders said the debtors received an unsolicited $2 billion cash offer from DISH Network Corp. wholly owned subsidiary L-Band Acquisition, LLC on May 15 to purchase some assets of LightSquared and its subsidiaries and assume some of their obligations.

If completed, the lenders said the L-Band sale would have led to payment substantially in full of all of LightSquared's creditors and would not have been conditioned on clearing the numerous regulatory hurdles.

The lender group said Harbinger, however, wants to maintain ownership and control and is opposed to a sale. As a result, the LP debtors chose to basically ignore the purchase offer without negotiating with L-Band.

The informal lender group said Harbinger sued the proposed stalking horse bidder and others, claiming that the purchase offer for the LP assets is "tortuously interfering with Harbinger's ownership interests."

The lenders said they filed Wednesday's motion "to optimize the likelihood that at least one option will be available that can be executed by the end of the year," although the motion does not in any way preclude ongoing discussions with the debtors, Harbinger and other parties and it should not be construed as a desire to withdraw from them.

The lender group said it negotiated with L-Band following expiration of the debtors' exclusive periods, resulting in the purchase offer being revised to increase the cash portion of the bid by more than $220 million, to $2.22 billion, and resulting in the buyer committing to assume obligations arising under Inmarsat and Boeing contracts.

The lender group said it estimates the transaction to be valued in excess of $3.5 billion.

L-Band's offer would serve as the initial bid in a public auction for the LP assets and would be subject to topping bids.

Harbinger opposition

As part of its opposition to the sale, the lenders said Harbinger alleges that the $2.22 billion cash payment "is a bad-faith, low-ball bid."

"Harbinger controls the debtors, and Harbinger cannot simultaneously sue the stalking horse bidder for tortiously interfering with its ownership interest by bidding, and then run an auction where others would likewise bid," the motion said.

"The party that is opposing the sale of LP assets, and intends instead to file a competing plan, cannot conduct the sale auction.

"Simply put, Harbinger cannot usurp the ad hoc LP secured group's plan for the seemingly sole purpose of scuttling it."

Bid procedures

Under the lenders' proposed bid procedures, competing bids would be due by 5 p.m. ET on Nov. 27 and must include a $100 million good-faith deposit.

Competing bids must exceed the total consideration proposed in the stalking horse bid by at least $118.6 million, which includes a $66.6 million breakup fee and up to $2 million in expense reimbursement to be paid to L-Band if it is not the high bidder.

The auction will be held on Dec. 4. Bids at auction must be made in minimum increments of $50 million.

A hearing on the lenders' motion to auction the LP assets is scheduled for Sept. 24.

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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