Testifying in the U.S. Bankruptcy Court in New York, Christopher
Rogers, a member of the independent special committee, said the plan
is not an attempt to punish Ergen for what LightSquared views as his
surreptitious methods of acquiring debt.
Rogers' testimony came during the opening day of what could be weeks
of court hearings on LightSquared's proposed restructuring plan. The
company is seeking approval by Judge Shelley Chapman to put the plan
into effect and exit bankruptcy.
LightSquared filed for Chapter 11 in 2012 after the Federal
Communications Commission revoked its license to build a planned
wireless network on concerns it could interfere with GPS systems.
Ergen bought up about $1 billion worth of LightSquared's senior loan
debt, despite an agreement between LightSquared and its lenders that
barred competitors from acquiring the company's debt. Ergen said he
bought the debt in his personal capacity, not on behalf of Dish.
LightSquared and its main shareholder, Phil Falcone's Harbinger
Capital Partners, sued Dish and Ergen, saying the latter had bought
the debt on Dish's behalf, to circumvent the credit agreement and
stack the deck for a Dish takeover. The sides are still waiting for
Chapman to rule on that case.
In the meantime, LightSquared is moving ahead with a proposed
restructuring that would subordinate Ergen's claims on the premise
that they are not valid senior secured claims. It would stick Ergen
with a long-term note while paying other lenders in cash.
His lawyers have called the plan a ploy to allow Harbinger to retain
equity in LightSquared. But Rogers on Wednesday said the note would
still eventually pay Ergen in full.
"We thought that was justified in this case," Rogers said.
Lawyers for Ergen shifted the focus to the viability of
LightSquared's plan, grilling witnesses on whether LightSquared can
realistically expect to regain the FCC's approval for its license.
Though the company does not need such approval to effect its
bankruptcy plan, the issue cuts to the heart of whether LightSquared
is a viable company in the long term. That question matters
especially for creditors such as Ergen, who may be paid over time
rather than in cash.
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Robert McDowell, a former FCC commissioner who is now a consultant
for LightSquared on FCC issues, testified on Wednesday that he
believes the company will get approval for the bulk of its broadband
rights by the end of 2015.
But McDowell was on the commission when it revoked LightSquared's
license in 2012, and lawyers for Ergen reminded him that it had good
reasons for doing so, namely interference concerns raised by members
of the GPS industry.
When pressed by a lawyer for Ergen during cross-examination,
McDowell acknowledged that the FCC places high importance on
concerns raised by GPS companies, which have urged the agency not to
act until the potential interference effects have been more deeply
Still, the fate of LightSquared's plan likely rests more on its
treatment of Ergen than on any other issue. That's why Chapman's
ultimate decision in the company's lawsuit against Ergen is
critical. If Chapman finds that Ergen did not act surreptitiously,
she is unlikely to confirm a plan that proposes treating him
differently than other lenders.
That could create a major time-crunch for LightSquared, whose
bankruptcy funding is expected to run out sometime in early or
The hearing on the plan is expected to continue on Thursday with
testimony from LightSquared Chief Executive Doug Smith.
The case is In Re LightSquared Inc, U.S. Bankruptcy Court, Southern
District of New York, No. 12-12080.
(Reporting by Nick Brown; editing by Marguerita Choy)
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