The LightSquared trial to determine whether Charles Ergen fraudulently acquired about $1 billion of LightSquared’s senior debt resumed in Manhattan bankruptcy court this morning, for a fourth day, with testimony from Sound Point Capital Management head Stephen Ketchum, who carried out the trades that gave Ergen’s fund a blocking position in the case.
Philip Falcone, the head of Harbinger Capital Partners, LightSquared’s largest equity holder, will take the witness stand this afternoon.
LightSquared lawyer Michael Hirschfeld, a partner at Milbank, spent hours attempting to establish that Ketchum and Dish Treasurer Jason Kiser – who testified last week (see, “LightSquared trial continues on day two with Dish treasurer,” LCD News, Jan. 10, 2014) – set out to build a blocking position in LightSquared’s senior debt in order to gain control in the company’s bankruptcy proceedings. In the process, Ketchum and Kiser then purposely delayed the closing of many of those trades, Hirschfeld claimed. But Ketchum was a difficult witness for the plaintiffs.
Time and time again, Ketchum answered most of Hirschfeld’s questions with “I don’t recall,” or a simple “no.” At one point, Judge Shelley Chapman paused the proceedings to remind Ketchum, “it’s your obligation to tell the truth here.”
Ketchum has known Kiser for about 20 years. Ketchum recently helped Kiser make trades in the debt of LodgeNet during its Chapter 11 proceedings, on behalf of EchoStar. The LightSquared trades mark the first time Ketchum made trades for Ergen personally, however.
Kiser testified last week that Ketchum established an entity known as SP Special Opportunities to carry out the debt trades on Ergen’s behalf. SPSO would allow Ergen to make the trades without disclosing his identity to the market. When asked this morning whether his firm formed SPSO, Ketchum simply replied: “I don’t recall.”
At one point in this morning’s proceedings, Hirschfeld mentioned an e-mail Ketchum wrote discussing the possibility of selling $5 million in face value of LightSquared debt at 88.5 cents on the dollar in order to test the market. From about May 2012 to May 2013, Ergen bought LightSquared debt, via SPSO, at prices ranging from about 48 to 96 cents on the dollar. Ketchum allegedly wanted to test the market with a sale to “send a signal to the market that we are not going to ride this thing up to the moon,” Hirschfeld said.
Discussing SPSO trades that remained open for weeks or months, Hirschfeld read from e-mails between Ketchum and Jefferies high yield salesman Stephen Sander. LightSquared alleges Ergen purposely left those trades open to thwart alternate funding the company was trying to raise in its reorganization. According to the e-mail transcripts, Sander at one point asked Ketchum if he needed to come to the office in person to discuss closing the trades “mano a mano.”
“Were you afraid this would come to fisticuffs?” Hirschfeld asked Ketchum.
“My Spanish isn’t very good, but I wasn’t worried,” Ketchum said.
LightSquared lawyer Matthew Barr told Judge Chapman this morning the company would present its engagement letter for exit financing in court on Thursday. In late December, LightSquared announced JP Morgan and Credit Suisse were arranging new exit financing that would serve as the cornerstone of the company’s reorganization plan, which calls for a new senior term loan of up to $2.5 billion; a $250 million senior secured term loan from JP Morgan; at least $1.25 billion in new equity contributions from Fortress Investment Group, Melody Capital, and Harbinger Capital; and the preservation of the multi-billion dollar litigation claims against Dish and Ergen being hashed out in this trial.
Harbinger Group, Falcone’s holding company, launched a $200 million offering of eight-year senior notes this morning via bookrunners Credit Suisse, Deutsche Bank, and Jefferies. – John Bringardner