NEW YORK ( The Deal) -- A group of LightSquared Inc. secured lenders have filed a Chapter 11 plan for certain debtor affiliates centered on a $2.22 billion sale to satellite TV mogul Charlie Ergen. Under the Tuesday, July 23, liquidation plan for 10 debtors led by LightSquared LP, Ergen's L-Band Acquisition Corp., a vehicle of Dish Network ( DISH), would be the stalking-horse bidder for substantially all the plan debtors' assets, including four satellites and spectrum holdings. (The plan does not cover holding company LightSquared Inc. and certain other debtors.) Court papers show rival offers would have to top LBAC's bid by at least $118.6 million. LBAC would receive a $66.6 million breakup fee and up to $2 million in expense reimbursement if it lost at auction. The lenders have yet to file a bidding procedures motion, but Judge Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan would consider the sale at a confirmation hearing. Court papers show LBAC on May 15 offered to purchase certain LightSquared LP assets for $2 billion, but the debtor, a Reston, Va., provider of wireless mobile broadband telecommunications services, ignored the offer. LightSquared Inc. instead requested permission on May 31 to pay Jefferies certain fees related to an exit financing package. Chapman approved the motion on June 7 after the engagement letter was amended to ensure LightSquared owner Harbinger Capital Partners will pay all up-front fees, which could total $80 million. The LightSquared LP plan, meanwhile, would pay administrative claims in full on the effective date. Priority claims and other secured claims also would be paid in full. Secured lenders, owed an estimated $2.17 billion, would receive any remaining sale proceeds--after reserving a payment for unsecured creditors and an unspecified amount for the debtors' wind-down--until paid in full. General unsecured creditors would receive a pro rata share of $10 million, plus any available funds after the payment of secured claims, until paid in full. Holders of preferred unit interests, owed $235.56 million, would receive any remaining available funds. If the group were paid in full, common equity holders would receive a recovery. LightSquared Inc. indirectly owns the common shares.
The members of an ad hoc group of secured lenders holding $1.35 billion in claims are sponsoring the plan. The proponents include Capital Research and Management ($331.18 million in debt), Cyrus Capital Partners ($134.5 million), Intermarket ($19.61 million), SP Special Opportunities ($824.32 million) and the Stamford, Conn., branch of UBS AG ( UBS) ($37 million). Ergen-backed Sound Point Capital Management controls SP Special Opportunities, which has been purchasing the debt over the past year. The plan called the fund an affiliate of LBAC. Backed by Philip Falcone's Harbinger, LightSquared has sparred with the secured lenders and, more recently, with Ergen. The most recent battlefront is a schedule LightSquared proposed on July 19 for hearing competing Chapter 11 plans. The debtor's exclusive right to propose a plan expired on July 15. In the scheduling motion, LightSquared proposed it would file a disclosure statement by Sept. 3, and a hearing on all disclosure statements filed by Sept. 4 would be held on Oct. 3. A confirmation hearing would follow on Dec. 16. Bidding procedures motions filed by Sept. 20 would be considered at the disclosure statement hearing, and an auction would be completed by Dec. 12. Chapman would consider the sale at confirmation. The debtor asserted the timeline would "enable LightSquared to resolve its Chapter 11 cases in a fair, expeditious, and orderly manner that minimizes restructuring costs and maximizes value for the benefit of all of its stakeholders." The ad hoc lender group, however, objected to the motion on Monday, and SP Special Opportunities joined the objection on Tuesday. In its objection, the lender group asserted the proposal would harm the estate, allow the debtors to burn cash, put the LBAC offer at risk and make LightSquared less attractive to potential bidders. The lenders also said the motion would lead to "costly, distracting litigation," which would be academic if they were paid in full as envisioned. The group called Dec. 6 "the latest outside date" to win confirmation and suggested a Sept. 16 disclosure statement hearing. The lenders said their debt accumulates $29 million in interest each month, and the LP debtors burn through $12 million.
Chapman was scheduled to consider the scheduling motion on Tuesday but yet to issue an order. LightSquared filed for Chapter 11 on May 14, 2012, ahead of the expiration of a grace period with creditors. Alongside attempts to reach a deal with creditors, it has tried to obtain approval from the Federal Communications Commission to use its spectrum licenses to provide wireless broadband services. LightSquared in court papers has listed $4.48 billion in assets and $2.29 billion in liabilities. In addition to LightSquared LP's secured debt addressed under the plan, LightSquared Inc. owes term lenders led by U.S. Bank NA roughly $322.33 million. Debtor counsel Matthew S. Barr of Milbank, Tweed, Hadley & McCloy was not available for comment. Fraser Milner Casgrain is debtor counsel in LightSquared's Canadian bankruptcy proceedings, which also began on May 14, 2012. Alvarez & Marsal North America is LightSquared's financial adviser, and Moelis & Co. is its investment banker. Glenn M. Kurtz and Thomas E. Lauria of White & Case represent the ad hoc lender group. Steven Zelin and C.J. Brown lead a Blackstone Advisory Partners team providing financial advice. Rachel C. Strickland and Mary K. Warren of Willkie Farr & Gallagher are counsel to SP Special Opportunities. Written by Pat Holohan.