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The Deal: Ergen Turns Attention to LightSquared

NEW YORK ( The Deal) -- While Charlie Ergen's wrangling with Softbank and Sprint Nextel (S) has subsided, his interest in the LightSquared bankruptcy has intensified.

Ergen-backed Sound Point Capital Management has quietly purchased close to $1 billion in LightSquared secured debt over the last year, with acquisitions increasing over recent months.

The Dish Network (DISH - Get Report) chairman's accumulation of debt is at the center of a dispute over LightSquared's exclusive right to file a reorganization plan, which expires in mid-July. Judge Shelley Chapman will hold a status conference on the matter on Wednesday in the U.S. Bankruptcy Court for the Southern District of New York.

A group of investors holding secured debt at LightSquared said in pleadings that the debtor is using Ergen's purchases to get out of its requirements under a February agreement on the debtor's exclusive right to file a reorganization plan. The creditors said LightSquared sent a letter in May stating that the company would not have to comply with the deal, because their group was no longer the largest holder.

The February agreement mandated that the terms would hold only if the secured LP group collectively had the largest position in the $1.7 billion class of debt.

LightSquared said in court filings that Sound Point's trading activity invalidates the agreement, even though Ergen's fund has since joined the secured group. The debtor argued that Ergen's fund gamed the system by arranging debt purchases but neglecting to close the trades, leaving ownership of the debt in limbo and preventing the debtor from negotiating a plan.

"What is shocking, and wholly uncontemplated," LightSquared argued, is that "the closing of trades would be delayed thereby keeping the technical parameters ... from ever being triggered, even though the economics of the situation and reality demonstrated otherwise."

The group of LP debt holders have about $1.3 billion of the $1.7 billion in debt in the class. Sound Point has by far the largest position, with about $820 million in secured debt.

"On June 13, one day before $120 million in hung trades were set to close, which trades would have officially made Sound Point larger than the Ad Hoc Secured Group ..., Sound Point joined the Ad Hoc Secured Group," LightSquared said in pleadings.

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