NEW YORK (The Deal) -- The lengthy battle between Philip Falcone's LightSquared and Charlie Ergen was assured of another act Thursday, May 8, when the wireless spectrum company failed to win confirmation of its reorganization plan.
Judge Shelley Chapman of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan called the plan a "gerrymandered end-around" that unfairly discriminates against the approximately $1 billion in claims held by Dish Network Corp. chairman Ergen. Chapman gave the parties until May 27 to reach a deal on a consensual plan or she would appoint Judge Robert D. Drain of the bankruptcy court as plan mediator.
LightSquared had sought to confirm the plan, based on a $2.65 billion exit financing package from Fortress Investment Group and others that have paid all creditors in full. Most would have received quick payments in cash, but Ergen's claim, the largest in the case, would have had payments delayed by seven years.
Chapman read her opinion over the course of four hours on Thursday afternoon for the benefit of parties involved, she said, so they would not have to wait for an official written ruling. That opinion will come as the parties attempt to negotiate.
"Treatment afforded in the plan doesn't pass muster," Chapman said. "This is treatment that, even if possibly yielding payment of the claim seven years down the road, puts [Ergen] at the mercy of a proposed post-confirmation capital structure."
That structure remains unclear and is one of the sources of the plan's problems, Chapman said. Various valuations by different parties have put the debtor's value somewhere between $4 billion and $13 billion, a figure too unstable to support the argument the Reston, Va., company can pay Ergen in seven years. In addition, much of the debtor's value will depend on unpredictable approvals from the Federal Communications Commission.