Testifying in U.S. Bankruptcy Court in New York, Ergen faced tough
questions from LightSquared lenders who believe he had visions of
effecting a Dish takeover at a lowball price. But Ergen said both he
and Dish believed the company was worth a lot of money, and that
Dish has gone forward with a $2.2 billion bid proposed last year, if
not for a technical issue that forced it to walk away.
LightSquared, owned by Phil Falcone's Harbinger Capital Partners,
went bankrupt in 2012, when the Federal Communications Commission
revoked its license to operate spectrum out of concern it could
interfere with GPS systems. Ergen then acquired about $1 billion of
the company's senior loan debt, giving him a controlling stake in
LightSquared's capital structure.
His motivations for amassing the debt are crucial to weeks of court
hearings in which LightSquared is seeking court approval of a
bankruptcy exit plan that would subordinate Ergen's claims. Whether
Ergen is deemed by Judge Shelley Chapman to have acted improperly
will be the key factor in whether Chapman approves the plan.
A group of other LightSquared lenders, along with LightSquared
itself, have alleged that Dish revoked its $2.2 billion bid for the
company in January after no competing bids were filed at auction, in
hopes of making a lower offer in the future.
Ergen has blamed pulling the bid on a "technical issue," the nature
of which has not been publicly discussed.
In Wednesday's testimony — the second time he has been compelled to
testify in the case — Ergen said Dish was prepared to go forward
with the bid if not for the technical concerns. He added that Dish
may have been willing to increase the bid to $2.4 billion but did
not have authorization from its board.
Dish, said Ergen, valued LightSquared at between $2.3 billion and
$5.4 billion, while Ergen personally believed its spectrum would be
worth between $5.17 billion and $8.9 billion to Dish, assuming FCC
[to top of second column]
LightSquared's bankruptcy exit plan would subordinate Ergen's
claims, repaying them in the form of a note ranking behind the other
lenders, who would be paid in cash. Harbinger would also retain some
equity in LightSquared.
The lenders on Wednesday made their case for why the plan is
fair, implying through a harsh line of questioning that Ergen
effectively pulled a bait-and-switch, initially earning the lenders'
support for Dish's bid, then dropping the bid when he realized Dish
could get the company for less.
The lenders last year advanced a restructuring proposal largely
premised on a Dish bid, then unsuccessfully scrambled to enforce
that bid after Dish walked away. They later joined forces with
LightSquared on its proposed restructuring.
Ergen contends the plan treats his claims unfairly. LightSquared has
argued in a separate lawsuit that Ergen built up his debt position
illegally, and the sides are still waiting for a ruling from Chapman
in that case.
The case is In re: LightSquared Inc et al, U.S. Bankruptcy Court,
Southern District of New York, No 12-12080.
(Reporting by Nick Brown; editing by Bernard Orr)
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