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The Deal: Ergen Defends LightSquared Debt Purchases

NEW YORK (The Deal) -- Charlie Ergen testified about his much-maligned purchases of LightSquared debt at a Monday court hearing in New York.

LightSquared and Philip Falcone's Harbinger Capital Partners have charged that Ergen acted as a front for Dish Network (DISH - Get Report) by acquiring debt in the wireless telecom even though a credit agreement barred the satellite TV company from owning the loans.

Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan is hearing a suit that the telecom and hedge fund chief brought against Ergen and Dish.

The expanded hearing included arguments about competing plans to reorganize LightSquared, which have become more complicated since Dish has said it will back out of a $2.22 billion offer for some of the company's assets.

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Ergen made the investments through personal investment vehicles, working with Dish treasurer Jason Kiser to make the purchases. Kiser's role has drawn scrutiny because he works at Dish and received no compensation for the work he did for Ergen. Dish made a bid for LightSquared - though it has given notice that it intends to exit its agreement.

Ergen suggested that Kiser liked having face time with Dish's chairman and controlling investor. He described Kiser as a "mentee." The two have known each other for more than 25 years, golfed together and had vacationed together with their families in Cabo San Lucas, Mexico.

Andrew Leblanc of debtor counsel Milbank, Tweed, Hadley & McCloy noted that Ergen stood to make about $150 million in principal and more in interest from the secured debt.

"You didn't pay Mr. Kiser to do those trades?" he asked Ergen under cross-examination. Ergen confirmed that he did not.

LightSquared also questioned whether Ergen had discussed the investments with his wife, Candy Ergen, who sits on the Dish board and is a co-trustee of the personal trust used to purchase the debt.

"You spent over $800 million of your money on LightSquared debt and you never asked your wife?" Leblanc asked.

Ergen replied: "Actually, I spent about $700 million ... and I never discussed it with my wife prior to May 2" when Dish had a board meeting.

Ergen contested the suggestion that Dish's board rubber stamps his proposals. He pointed to a $25.5 billion offer for Sprint Nextel (S), which Dish's board at first rejected even though Ergen favored it. "There was concern that management hadn't done its homework," Ergen said.

When he began to purchase LightSquared debt, Ergen said, the debtor's spectrum was not attractive to Dish. Recent regulatory decisions have since given Dish more flexibility about deploying its own spectrum in a manner that would allow it to use LightSquared's spectrum.

If Dish had not agreed to bid for LightSquared's assets, Ergen said he had discussed a joint bid with Blackstone Group's GSO Capital Partners.

Dish ultimately agreed to make the offer for the debtor's LightSquared unit. The company backed out, citing a technical issue.

A group of secured creditors filed a statement with the court on Monday arguing that Dish should not be able to exit its commitment. The group said it will push forward with a reorganization plan based upon the sale to Dish, either holding the satellite TV company to its deal or by proceeding with an alternate deal.

The creditors said that Dish cited a technical problem in a letter terminating their involvement in the deal. The technical matter is a "pretext" for Dish and Ergen to "threaten to terminate" the deal with creditors, the group said, and seek "new conditions to their obligations, reduce the purchase price they were willing to pay and materially delay funding."

If the court would not enforce the sale, the secured group said they would move to subordinate Ergen's roughly $1 billion in secured claims. The secured creditors would proceed with a $1.2 billion cash offer funded by members of the group and "certain other of the Debtors' stakeholders and third parties," the group said.

Written by Chris Nolter.

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