A subset of the ad hoc group of LightSquared LP’s secured lenders filed a proposed disclosure statement with the U.S. Bankruptcy Court in Manhattan late Monday night, in support of a reorganization plan that would sell off the company’s assets in a Dec. 6 auction.
Collectively, the members of the ad hoc group hold about $1.379 billion of LightSquared LP’s secured loans, or 82% of the total. But the group filed its motion Monday independently of its largest single member, Charles Ergen’s fund SP Special Opportunities LLC, because it is an affiliate of the proposed stalking-horse bidder under the plan, L-Band Acquisition. The so-called “independent ad hoc group” includes Capital Research and Management Company, Cyrus Capital Partners, Intermarket Corp., and UBS AG, Stamford Branch.
LightSquared itself has not yet filed a plan or disclosure statement, but the ad hoc group pointed out in its filing that the company had circulated a motion it intends to file with the court seeking approval of solicitation procedures for competing plans.
The new disclosure statement includes hearing dates that could see a reorganization plan – the ad hoc group’s or LightSquared’s – approved by the end of the year. U.S. Bankruptcy Judge Shelley Chapman will hold a Sept. 24 hearing to consider approval of L-Band as stalking-horse bidder; a Sept. 30 hearing to approve disclosure statements; and a Dec. 10 confirmation hearing.
The ad hoc group, including SP, first filed a disclosure statement and plan in a surprise move shortly after LightSquared’s exclusive right to file a plan expired in July. The plan is premised on the sale of substantially all of the company’s assets in a court-supervised process, with a $2.22 billion cash stalking-horse bid from Ergen’s L-Band Acquisition. Ergen has been fighting for control of LightSquared with Phil Falcone, who owns the company currently through Harbinger Capital. Harbinger recently sued Ergen, challenging his purchase of more than $1 billion of the company’s secured debt. (see “Harbinger sues Ergen over ‘fraudulent’ purchase of LightSquared debt,” LCD News, Aug. 6, 2013).
Under the group’s plan, the proceeds of the asset sales would be paid to creditors in a waterfall distribution, with holders of the secured LP claims receiving $2.102 billion if the stalking-horse offer is accepted. Unsecured creditors, with claims estimated at about $7.6 million, would receive distributions from a $10 million distribution fund, with any excess flowing to holders of the company’s preferred units, which have claims of about $235.56 million outstanding.
The company’s common equity, which is held by a holding company (LightSquared, Inc.) controlled by Falcone, would theoretically be entitled to a distribution after creditors are paid at 100%, roughly $2.4 billion, according to the proposed disclosure statement.
Also according to the disclosure statement, the L-Band bid would be subject to higher and better offers, “but, in no event, shall the aggregate consideration to be paid in excess of the stalking-horse bid be less than $118.6 million,” representing a break-up fee of $66.6 million, expense reimbursement of up to $2 million, and a minimum $50 million overbid amount.
The independent ad hoc group valued L-Band’s current offer, with its assumption of certain material obligations, at more than $3.5 billion. The L-Band bid includes $2.22 billion in cash, for use of LightSquared’s 46 MHz of L-Band MSS spectrum and certain other assets, according to the disclosure statement. The offer is not conditioned on FCC or Industry Canada approval, which remains pending.
“Since the commencement of these Chapter 11 cases over a year ago, the 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,” the independent lenders wrote in their motion Monday. “Despite more than 15 months under the bankruptcy court’s protection, however, the debtors’ strategy has not advanced in any cognizable respect – they 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 with respect to any of the multiple contingencies that remain between the debtors and an operating business that could even conceivably service its continuously growing debt obligations.”
“That risk has increased over time as the debtors’ position has worsened – creditors’ cash collateral has been depleted; the number of potential strategic purchasers for the debtors’ assets may be diminishing in light of market developments; Harbinger Capital Partners, the debtors’ controlling equity holder, and certain of its affiliates, including Philip A. Falcone, have 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, which is sure to have a chilling effect on the debtors’ current efforts before the Federal Communications Commission to obtain approval of their applications,” the motion went on.
“In short, in the more than 15 months since the commencement of these Chapter 11 cases, the debtors have failed to make any tangible progress toward their proposed regulatory solution or a plan of reorganization based thereon, and the debtors’ prospects of solving their problems are increasingly bleak. In any case, it is now completely clear that pursuing a plan conditioned on regulatory approval would ensure that these Chapter 11 cases are not concluded for months, if at all. The LP debtors’ estates cannot afford to continue playing out Harbinger’s option.” – John Bringardner