The bankruptcy court overseeing the Chapter 11 proceedings of LightSquared has set a confirmation hearing for Oct. 20 on the various reorganization plans that have now been proposed in the case.
That schedule is designed to see a reorganization plan confirmed by Oct. 31.
But given the events in the case over the past week, arriving at that date was no simple matter, even as Bankruptcy Court Judge Shelly Chapman stressed the need for a “definitive schedule” to bring the case to a conclusion. Indeed, based on the deep disagreements expressed by the various warring parties in the case late yesterday afternoon at a hearing in Manhattan, and the myriad issues related to conducting a confirmation hearing for three reorganization plans in a case that is, to put it mildly, extremely contentious, it is unclear whether that schedule will be met.
Consider, yesterday’s status conference, the purpose of which was simply to set a confirmation hearing schedule, took nearly two hours.
Still, if Chapman and the many attorneys appearing at the hearing, which stretched into the early evening, were able to agree on anything it was that the case had now reached an inflection point at which a resolution – one reached sooner rather than later – was in the interests of all of the parties, even if they disagreed on what that resolution would look like.
“We have a schedule. We’re sticking to the schedule,” Chapman said.
Thomas Lauria, the attorney for the ad hoc panel of secured lenders in the case that jointly filed a proposed reorganization plan last week with the company, discussed the economic pressure driving the case at this point. According to Lauria, when LightSquared went into Chapter 11 in 2012 it owed creditors $2 billion, but that the amount had now grown to $3 billion. That tab would increase by another $300 million by the time the company emerges from Chapter 11 in the first quarter of 2015, Lauria said, even if all goes according to the current schedule, and could climb as high as an additional $400 to $500 million if the confirmation process is delayed beyond October and emergence leaks into the second quarter of 2015.
The logistical problem facing the parties now is that in the wake of the breakdown of the global consensus coming out of mediation, there are three potential reorganization plans at play in the case.
One plan is the proposed plan filed last week by the company and the ad hoc LP lender panel that would reorganize the company – which has its secured debt split between its parent company (LightSquared Inc., with roughly $322 million of secured pre-petition debt outstanding) and a limited partnership unit that is the issuer of the company’s larger pre-petition secured facility (LightSquared LP, with about $2 billion outstanding) – on a consolidated basis (see “LightSquared files revised reorganization plan,” LCD, Aug. 7, 2014). Among other things, the consolidated structure addresses various intracompany issues, most significantly LightSquared Inc.’s guarantee of LightSquared LP’s secured debt.
But the sole holder of the LightSquared Inc. secured debt, MAST Capital Management, has said it intends to reject the plan, because it does not want the recovery offered to it in the consolidated plan, one comprised of new debt and equity in the reorganized company. Under the consolidated plan, MAST’s rejection would result in LightSquared LP reorganizing on a standalone basis, leaving LightSquared to reorganize on its own as well, with the intracompany issues to be resolved by post-confirmation litigation.
As for LightSquared Inc. reorganizing as a standalone company, there are currently two potential reorganization plans for the parent company on the table.
MAST is seeking to reprise a plan it filed earlier in the case that calls for LightSquared Inc. unit One Dot Six, a Reston, Va.-based communications company, to be auctioned off, with MAST acting as the stalking-horse bidder with a credit bid of its DIP claims in the case.
Meanwhile, Harbinger Capital filed a new proposed plan yesterday for LightSquared Inc. that would pay MAST’s claim in full. That plan would be financed with a new $460 million DIP facility that would convert into a new $360 million first-lien term exit facility and a $100 million first-lien exit revolver, along with junior investment in the form of $100 million of new equity financing from Harbinger, $160 million of new equity financing from an affiliate of JP Morgan Chase, and $40 million of new subordinated debt from JP Morgan Chase.
An attorney for MAST said today that MAST would vote in favor of the Harbinger plan, though several parties at today’s hearing questioned whether financing to back to plan would materialize. An attorney for JP Morgan Chase, however, expressed confidence that the plan could attract the needed funding.
Beyond that consideration, each of the proposed plans, to one degree or another, carry various uncertainties and contingencies that could have ripple effects with respect to the other plans, and would therefore affect the issues that need to be addressed at confirmation.
For example, if the parties are able to agree on a consolidated plan, it would simplify matters considerably. But if there are separate reorganization plans for LightSquared Inc. and LightSquared LP, it would give rise to a contested valuation hearing in order to determine the value of the recovery for LightSquared LP’s secured lenders, a determination that would need to be made to determine the extent to which, if any, LightSquared Inc. would remain on the hook as a guarantor of the LP debt. That could be time consuming, both at a potential hearing and in the discovery disputes that would be sure to occur leading up to contested valuation fight.
And that’s not even to mention the poisoned atmosphere in which the parties are operating. There is a split between the Charles Ergen controlled vehicle SPSO, which holds LP secured debt potentially subject to equitable subordination, and other holders of the LP debt. Referring to Ergen’s interests in LightSquared competitor DISH, Lauria noted that while Ergen could benefit from LightSquared’s collapse, other holders of the debt are simply seeking the maximum recovery possible on their investment.
Rachel Strickland, an attorney for Charles Ergen-controlled vehicle SPSO, both a key player and key source of controversy in the case, described the atmosphere in the case as one of “mistrust and paranoia on all sides.” – Alan Zimmerman