LightSquared lender group amends plan, asks court to end Harbinger PSA

By Kali Hays

New York, Oct. 6 – An informal group of LightSquared LP lenders filed amendments to the company’s joint Chapter 11 plan of reorganization on Oct. 6 with the U.S. Bankruptcy Court for the Southern District of New York.

As previously reported, the lender group announced its intentions of amending the plan on Oct. 2 after creditors entered into a plan support agreement with Harbinger Capital Partners LLC on its competing reorganization plan.

The amendments to the joint plan are designed to keep the LightSquared LP and LightSquared Inc. debtor estates together and eliminate the option of an LP-only plan offered under the previously proposed plan if MAST Capital Management LLC voted to reject the plan.

Under the amended plan, MAST’s claims will be unimpaired and paid in cash in full from proceeds of new DIP financing provided by the lenders group, according to a notice filed Monday with the court.

J.P. Morgan Securities LLC and other holders of LightSquared Inc. preferred stock equity interests will be offered “a transaction that closely replicates” their recovery under the competing Harbinger plan if the LightSquared Inc. preferred equity class votes to accept the amended plan and J.P. Morgan agrees to purchase $450 million of common equity in the reorganized business.

Harbinger will receive a settlement of its LightSquared Inc. subordinated claims for a cash payment of $125 million under the amended plan, which will be reduced to $50 million if it refuses to assign its claims against SP Special Opportunities LLC (SPSO), the GPS Industry and the Federal Communications Commission over to the reorganized debtors.

The amendments also offer SPSO an increase of its allowed secured claim to $1.1 billion, which will share in the second-lien debt, convertible preferred and common equity to be received by other LightSquared LP lenders. If SPSO rejects the amended plan, its unsubordinated claim will be satisfied entirely with second-lien debt.

Pre-bankruptcy LightSquared LP lenders’ claims will be provided a new tranche of convertible preferred stock between the second-lien debt and the common equity.

If J.P. Morgan accepts the amended plan and agrees to purchase $450 million of new common equity, the amended plan will require $600 million of first-lien debt to fund an exit from bankruptcy, according to the notice.

The lender group said it is in the process of preparing the amended plan and intends to file with the court by Friday.

According to the lender group, an impediment to the amended plan process is the current Harbinger plan support agreement, which prohibits J.P. Morgan from considering the amended plan until Nov. 16.

“The LP group believes that continued prosecution of the Harbinger plan – the objective of the PSA – is wasteful and should be dispensed with at the earliest possible time,” the notice stated.

The lender group said that the determinations in the Harbinger plan “are without precedent” and “would turn fundamental long-established principle of debtor/creditor law on their heads.”

“The sooner the facially-flawed Harbinger plan (which, if confirmed despite its flaws, would no doubt destroy hundreds of millions of dollars of potential reorganization value) is dispensed the sooner the Bankruptcy Court and the parties can turn their attention to a truly value-maximizing transaction – the amended plan,” the notice stated.

A plan confirmation hearing is scheduled for Oct. 20, but the lender group asked that the court instead use the hearing to release the parties from the PSA, allowing votes on the amended plan.

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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