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The Deal: LightSquared Hearing Focuses on Dish Maneuvers

Stocks in this article: DISH

NEW YORK (The Deal) -- After Dish Network (DISH) withdrew a $2.2 billion bid for a group of LightSquared's assets, debt purchases by the satellite TV company's chairman Charlie Ergen were the focus of a Thursday bankruptcy hearing.

At the hearing, a lawyer for the bankrupt telecom suggested that the abrupt bid withdrawal, as well as the way Ergen went about acquiring his debt stake, were tactical moves meant to impede the reorganization to the benefit of Dish.

Judge Shelley Chapman began an extended hearing Thursday that will consider competing plans to reorganize LightSquared and a lawsuit that the debtor brought against Ergen because of his purchases of secured debt.

The hearing marks the culmination of legal wrangling between Ergen and LightSquared backer Philip Falcone over the troubled telecom.

The parties debated whether Ergen made a legitimate investment in LightSquared's secured as an individual, or whether he violated debt terms by purchasing the securities, maneuvers that David Friedman of Kasowitz Benson Torres & Friedman LLP, representing Falcone's Harbinger Capital Partners LLC, termed "Ergenomics."

After a few failed attempts to line up financing, LightSquared has proposed a reorganization plan with funding from Fortress Investment Group LLC, JPMorgan Securities LLC, Melody Capital Advisors LLC and Harbinger Capital Partners. Chapman will consider the debtor's plan later in January.

Dish and EchoStar, (SATS) which Ergen also chairs, are among a group of competitors that LightSquared's credit agreement prohibited from buying secured debt.

Ergen spent $700 million to $800 million purchasing debt through a family trust in the name of his daughter, for which Ergen and his wife are trustees.

Ergen holds about $1 billion in face value of secured claims against the company. LightSquared and Harbinger Capital Partners have argued that Ergen's claims should be subordinated or otherwise reduced.

LightSquared counsel Matthew Barr of Milbank, Tweed, Hadley & McCloy LLP told the court that when LightSquared's credit agreement "closed a door" to Dish acquiring the debt, Ergen "created a window" by making the purchases himself.

Barr questioned Dish's motivation for withdrawing its bid just before the hearing. He suggested the company may have wanted to force a committee to "run" to Dish to reopen negotiations, to lower the price or to bring LightSquared "to the brink" of liquidiation.

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