By Joseph Checkler
Hedge-fund manager Philip Falcone said Thursday he didn't know
Dish Network Corp. Chairman Charles Ergen was buying up
LightSquared debt in 2012 and 2013. Mr. Falcone was testifying at a
trial to determine whether Mr. Ergen improperly acquired the debt
for Dish and not himself.
In court, Mr. Falcone, whose Harbinger Capital Partners controls
85% of LightSquared's equity, was read emails he sent in 2012 and
2013 widely speculating who was behind the SP Special Opportunities
LLC vehicle that was buying LightSquared's bank debt at the time.
In various messages, Mr. Falcone speculated that Mr. Ergen could be
behind the purchases but also said Carlos Slim, Cablevision Systems
Corp.'s James Dolan, AT&T Inc. or others may have been the
buyers. Mr. Falcone said he didn't realize it was definitely Mr.
Ergen behind the SP vehicle until May 2013.
LightSquared is suing Dish and Mr. Ergen over his purchases of
LightSquared's bank debt, saying he actually bought it on behalf of
Dish, which as a LightSquared competitor was prohibited from buying
it. After the purchases, Dish then made a $2.2 billion offer for
LightSquared's wireless spectrum, but dropped the bid last week.
Mr. Ergen testified at the trial earlier this week, and Thursday
was Mr. Falcone's turn. Even with the Dish bid gone, LightSquared
still wants to prove the debt purchases were improper, which could
allow LightSquared's junior creditors to recover more.
Whether Mr. Falcone and LightSquared knew it was Mr. Ergen
making the trades could become central to the case. Mr. Ergen said
earlier this week that he intentionally tried to keep his trades
confidential so he wouldn't drive the debt prices up. LightSquared
lawyers have said in court that part of the reason Mr. Ergen kept
quiet was because he was sidestepping the rules and acting in
concert with Dish, not for himself.
Mr. Falcone said he didn't find out about Mr. Ergen's trades
until just before Dish made its bid last year.
Some emails Mr. Falcone wrote said that rumors about well-known
investors like Mr. Slim or Mr. Ergen buying LightSquared could
generate more interest in the company.
A lawyer for Mr. Ergen pressed Mr. Falcone on whether he would
have any interest in selling LightSquared before it receives the
regulatory approvals it needs to fully use its wireless
network.
"At the appropriate valuation, sure," said Mr. Falcone, who said
Harbinger has put between $1.8 billion and $2 billion into the
investment.
The lawyer then read a statement from Mr. Falcone's deposition
saying he wouldn't sell the company before such approvals. Mr.
Falcone said he made that prior statement with the $2.2 billion
Dish bid in mind, and that he thinks the company's wireless
spectrum is worth much more. He has said in the past that the
company's spectrum could be worth as much as $10 billion, a number
that came up in court several times Thursday.
Spectrum refers to the limited pockets of airwaves that mobile
phone and Internet companies use.
Mr. Falcone has long wanted to build a wireless satellite
network so 260 million Americans can have low-cost cellphone
service. LightSquared has been his conduit for that goal.
The longer the company's bankruptcy case goes on, the closer it
could be getting to the Federal Communications Commission approvals
it needs to fully deploy its network. Lawyers for Dish and Mr.
Ergen have said throughout the case that Mr. Falcone will do
anything to drag the case along so he can keep control of
LightSquared as it waits for regulatory clearance.
"You believe LightSquared is best served remaining in bankruptcy
until FCC approval," said Willkie Farr & Gallagher LLP's James
C. Dugan, a lawyer for Mr. Ergen. "No," Mr. Falcone responded.
Mr. Falcone also said he was optimistic that LightSquared would
get FCC approval for its network.
"I have a pretty good feeling about what they're going to do,"
he said.
LightSquared had long opposed the Dish bid and is trying to
remain an independent company. It is pushing for a $4 billion
restructuring proposal, led by Fortress Investment Group LLC, that
it says is better than the now-abandoned Dish sale and the sale of
a smaller swath of the company's wireless spectrum to creditors
U.S. Bancorp and Mast Capital Management.
Both the abandoned Dish sale and LightSquared plans would pay
off the holders of more than $1.8 billion in LightSquared bank
debt, a group that includes Mr. Ergen's vehicle, as well as several
hedge funds.
Those hedge funds had presented the $2.2 billion Dish sale as a
reorganization plan for LightSquared and as recently as a Tuesday
bankruptcy-court filing said they still wanted to move forward with
that deal. It is unclear whether Dish has walked away for good or
whether it will make a new offer for the spectrum.
LightSquared filed for bankruptcy protection in May 2012 after
federal regulators refused to clear the company's network plans,
which they said could interfere with global-positioning systems.
Dish's bid was less contingent on regulatory approvals than the
LightSquared proposal, which Dish had touted as a reason its
proposal was superior.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@wsj.com
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