2. CASE STUDY
LightSquared: A Bitter Bankruptcy
Alan Carr, Drivetrain Advisors, Ltd. (Moderator)
Hon. Shelley C. Chapman, U.S. Bankruptcy Court, Southern District of New York
Mark Hootnick, Millstein & Co.
Thomas Lauria, White & Case
Jack Neumark, Fortress Investment Group, Credit Funds Business
3. LightSquared Background
• LightSquared’s principal line of business was developing a nationwide,
terrestrial 4G network for wholesale deployment from owned/leased
satellite-only spectrum
• LightSquared controlled the following spectrum assets:
– 40 MHz + 6MHz of owned/leased L-Band Mobile Satellite Service
spectrum (“L-Band)
– 5 MHz of 1.6 GHz leased terrestrial spectrum of One Dot Six Corp. (“One
Dot Six” or “Crown Castle”)
– LightSquared owned two next-generation satellites
• In February 2012, the Federal Communications Commission proposed to
modify LightSquared's satellite license to indefinitely suspend its underlying
terrestrial component
• On May 14, 2012, LightSquared filed for Chapter 11
1
4. Lower
Down-
Link
Upper
Down-
Link
Radio Navigation Satellite
System ("RNSS")
Lower
Uplink
Upper
Uplink
Crown
Castle
(5
MHz)
LightSquared Background
Spectrum Held by LightSquared LP
Spectrum Held by LightSquared Inc.
Global
Positioning
System
(“GPS”)
1526
1536
1545.2
1555.2
1559
1610
1627.5
1637.5
1646.7
1646.7
1670-1675
LightSquared Spectrum Overview
2
5. • Assets and liabilities were held in two distinct corporate structures which are referred
to as the “LP Estates” and the “Inc. Estates”
Corporate and Debt Structure
• 40 MHz L Band
(incl. Inmarsat
Lease)
LP
Common Equity
LP Preferred:
• Fortress
• Solus
• Others
• 5 MHz of 1.6
Spectrum
• NOLs
$325mm Secured Debt, 20%
• MAST (senior)
• Harbinger (subordinated)
Inc. Preferred:
• JPM
• Others
Harbinger (~90% )
Inc.
3
At Consummation:
$3bn Secured Debt
• Centerbridge
• Fortress
• SPSO
• CapRe
• Cyrus
• Icahn
• Appaloosa
• Fortress
• Knighthead
• SPSO
• Others
Early in case:
$1.7bn Secured Debt, 17%
6. Lower
Down-
Link
Upper
Down-
Link
Radio Navigation Satellite
System ("RNSS")
Lower
Uplink
Upper
Uplink
Crown
Castle
(5
MHz)
NOAA
“Mod” Spectrum Business Plan
In response to FCC action, plan to use LP and Inc. spectrum to maximize
value
Spectrum Held by LightSquared LP
Spectrum Held by LightSquared Inc.
Global
Positioning
System
(“GPS”)
1526
1536
1545.2
1555.2
1559
1610
1627.5
1637.5
1646.7
1646.7
1670
1680
Paired 10x10 MHz Paired 10x10 MHz
4
7. Governance and Competitor Involvement
• Board controlled by Harbinger Group
– Majority Shareholder
– Held subordinated secured claim at Inc.
• Charles Ergen
– Controlled DISH – alleged competitor to LightSquared
– Controlled SPSO – purchased over $1 billion of LP senior
secured debt
• Blocking position
• Discount to par
• Suspected of delaying closing trades to hide identity
5
8. Governance
• LBAC (DISH subsidiary) bid $2.2 billion for LP’s
wireless spectrum licenses
• Harbinger / Falcone opposed bid
– Low-ball bid
– Value of bid comparable to face value of LP’s outstanding
secured debt obligations
– Alleged that SPSO’s debt purchases were impermissible
because SPSO was controlled by a competitor and did not
meet the definition of “eligible assignee” under LP’s credit
agreement
• Group of LP Secured Lenders (including SPSO)
entered into an RSA with LBAC
6
9. Governance
• Mid-2013, as a condition to extension of exclusivity,
Special Committee of 3 Independent Directors
appointed to oversee restructuring and auction of all
of LightSquared’s assets
– Premise that the combined value of LightSquared’s
assets was greater than LP and Inc.’s assets valued
separately
7
10. Auction
• Break-up Fees
– LBAC entitled to breakup fee of 2 1/3% (and potentially 3%) of the
final transaction price, or at least $51.8 million
– Inc. Lenders not granted break up fee
• Special Committee vigorously marketed LightSquared
• Unsuccessful in creating robust auction process
– Impact of existing LBAC bid / RSA with Group of LP Secured Lenders
• No other qualified bids from third parties outside of LightSquared’s
capital structure
• LBAC requirement of claims releases
• Special Committee cancelled the auction
9
11. Auction
• Subsequently, LBAC terminated its bid and PSA with
the Ad Hoc Group of LP Lenders
– LBAC’s right to terminate the LBAC bid and PSA was
challenged by the Ad Hoc Group of LP Lenders but
upheld by the bankruptcy court
10
12. First Confirmation Hearing: Overview of Plan
• May 2014
• Proposed Plan Key Terms
– Backed by Harbinger, Fortress, JPMorgan & Melody Capital
Partners
– Would have restructured $4 Billion
• Harbinger would have retained minimum 30% equity stake,
potentially up to 36%
– Would have repaid Ergen / SPSO through seven-year 3rd Lien
note
• Required Equitable Disallowance
11
13. First Confirmation Hearing: Valuation
• Judge Chapman denied confirmation
• Valuation
– Uncertainty regarding FCC approvals regarding
LightSquared’s ability to use certain wireless spectrum
made it impossible to value the company
– Made claim that Ergen would eventually be repaid in full
unreliable
• Plan was not fair and equitable to SPSO
12
14. First Confirmation Hearing: Equitable Disallowance
• Debtors sought equitable disallowance of SPSO’s
claim, arguing SPSO was a competitor
– SPSO / Ergen would have received no distribution on
account of claim
• Judge Chapman found inequitable conduct, but
denied disallowance remedy
– in order for claim to be disallowable, agreement must
provide that breach renders assignment void
13
15. First Confirmation Hearing: Equitable Subordination
• Debtors sought equitable subordination of SPSO’s
claim
• Judge Chapman determined some of SPSO’s claim
should be subordinated, with the amount to be
determined at a later date
• Found SPSO / Ergen was buying debt for the benefit of DISH
and purposely “hung trades” in an attempt to control the
bankruptcy proceedings
• Rejected the notion that equitable subordination should be
linked to the purchase price of a claimant’s debt
14
16. First Confirmation Hearing: Confirmation Denied
• Judge Chapman gave the parties 2 weeks to resolve
their differences consensually.
• If the parties failed to reach agreement, Judge
Chapman said that she would appoint Judge Drain as
mediator
15
17. Mediation & Development of Restructuring
Alternatives
• Judge Drain was appointed as mediator at the end of
May 2014. Mediation stretched from June to
December 2014
• Several alternative restructuring plans were proposed,
with the balance of power shifting several times
• Paradigm shift occurred when FCC Auction 97
dramatically changed value dynamic (November 2014)
• In light of spectrum value, stakeholders reconsidered
approach to restructuring
16
18. Second Confirmation Hearing
• New Plan
– Kept all of Debtors’ estates together to maximize value of
collective assets
– Controlled by Centerbridge Partners, Fortress Investment
Group and JPMorgan (Harbinger retained 44% of equity, but
ceded voting control)
– Provided senior stakeholders with same or better treatment
• Ergen paid in full in cash
– Junior stakeholders received sizeable recovery
19
19. Second Confirmation Hearing
• Valuation
– LightSquared presented two valuations of its assets
– The second approach considered the implications of the
FCC’s recent auction of AWS-3 wireless spectrum on the
value of LightSquared’s spectrum, while the first
approach did not
17
20. Second Confirmation Hearing
• Competing Plans & Objections
– Solus proposed a competing plan, which it withdrew when
Fortress, Centerbridge and Chase purchased its claims
– Ergen had objected, but withdrew objection when plan was
changed to pay his claims in full in cash (as opposed to with a
note)
• Consensually resolved
18
21. Second Confirmation Hearing
• FCC conditionality
– Conditioned on FCC approval of transfer of licenses from
Debtors to New LightSquared
• Company locked in financing during a robust financing
market; proved to be good decision given market
volatility in 4Q2015
• December 7, 2015 – Plan went effective when FCC
approved Debtors’ change of control application
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