LightSquared is seeking to pay a $200 million breakup fee to the backers of its restructuring, including Fortress Investment Group LLC, in case the mobile satellite company’s Chapter 11 exit doesn’t pan out as planned.
In a Wednesday filing with U.S. Bankruptcy Court in Manhattan, LightSquared said Fortress would get nearly half the $200 million, payable only if LightSquared opts for an alternative restructuring proposal. Two other backers of the plan, Centerbridge Partners LP and Sig Holdings Inc., would get the rest.
Philip Falcone’s Harbinger Capital Partners, which currently controls LightSquared’s equity and is investing new money in the restructuring, wouldn’t get any of the breakup fee.
Last month, LightSquared filed the latest of its restructuring proposals, one that includes Falcone but proposes to give control of the company to others, including Fortress and Centerbridge. In telling a judge about the proposal in court last month, LightSquared lawyers indicated they would ask for approval of the breakup fee.
In their Wednesday court filing, lawyers for LightSquared defended the amount of the fee, noting that investors have pledged to pump more than $1 billion in new money into the company.
“The amount of the alternative transaction fee is reasonable in light of the overall complexity of the Chapter 11 cases and value of the plan,” LightSquared said in the filing.
A hearing on the fee proposal is set for Jan. 15.
The plan presented by LightSquared last month would pay off its largest creditor, Dish Network Corp. Chairman Charlie Ergen, via a five-year note rather than cash. Ergen, who is owed about $1 billion, is the only major creditor who doesn’t support the plan.
Under the plan, Falcone’s Harbinger would own 44.4 percent of LightSquared’s equity, with Fortress getting 26.2 percent and Centerbridge 8.1 percent. The rest of the equity would go to current investors in a smaller piece of the company, called LightSquared Inc.
While Harbinger would be the largest shareholder of the new LightSquared, a wireless venture that Falcone has hoped could someday provide low-cost mobile services to hundreds of millions of Americans, the investment firm wouldn’t have any representation on the company’s board of directors. Instead, Centerbridge and Fortress would pick three of the board’s seven members.
A key component of the plan is an agreement by Harbinger to drop its various lawsuits against several entities, including Ergen, the U.S. government and the Global Positioning System industry.
LightSquared filed for Chapter 11 in May 2012, shortly after federal regulators refused to clear LightSquared’s plans to launch its wireless network. Those regulators heeded warnings from the GPS industry that the network could interfere with GPS.
LightSquared isn’t able to fully use spectrum that it owns without support from the Federal Communications Commission. The FCC has so far refused to grant such approval.
