Lightsquared Files for Bankruptcy

Editor Note: I will be writing a post on Ally / Rescap tomorrow, Tuesday the 15th after the Ally call. At the end of the day, the 3rd lien 9.625% went out 94-95, down 4-5 points. I will also be writing a post this week, in a new template, for Houghton Mifflin.

Today, LightSquared Inc. ("LightSquared" or "the Company") and 19 of its subsidiaries filed for bankruptcy in the Southern District of New York (12-12080). As most are aware, LightSquared is the spectrum play of Phil Falcone's Harbinger Capital, which recently represented a large portion of Harbinger's assets.

For those interested, the docket (via the claims agent site) can be found here: LightSquared Docket. The Term Loan went out 67-68.5 (flat) at the end of the day. The bank debt has rallied as of late on news reports that Charles Ergen, owner of DISH Network, had purchased a substantial amount of bank debt in the name.

Some interesting points of reference from the First Day Declaration of CFO Marc Montagner:

  • From 2001 to today, LightSquared has invested approximately $4 billion of funds in its wireless network business plan (4G LTE open wireless broadband network)
  • Significant discussion of working with GPS industry and the subsequent issues with interference (that has also widely been reported in the press): "As it had done in all previous situations, LightSquared offered to work with the various governmental agencies and the GPS industry to rectify these issues and to expend significant resources in aid thereof. Unlike all previous situations, however, the GPS industry refused to compromise with LightSquared and instead sought to convince regulatory agencies to strip LightSquared of its ability to use its allocated spectrum for terrestrial purposes"
  • All parties, including LightSquared are awaiting an FCC decision, after a public comment period, for LightSquared's ability to use its spectrum for terrestrial purposes
  • LightSquared has cut 1/2 of its employees and reduced burn by 30%
  • Looks like there was an attempt at an out of court restructuring that went awry and LightSquared was forced to file Chapter 11
  • Here is the corporate structure:
  • LightSquared has deployed two of the most powerful mobile satellites ever constructed
  • Three lines of business 1) MSAT: Mobile Satellite Communications or the wholesale service [push to talk included] 2) MDS: Mobile Data Services. "low rate data service offering primarily used for applications such as fleet and load management, email, vehicle tracking, two-way messaging and broadcast messaging and 3) PNC: Private Network Carrier. Leasing bandwidth for custom satellite data solutions. 
  • The play all along was that the proliferation of mobile would overwhelm the needs of current carrier's spectrums and LightSquared would save the day by providing their own 4G LTE network.
  • $2.3B of liabilities as of the February 29th.  Book value is listed at $4.48B
  • Spectrum breakdown is given
  • Capital Structure: LightSquared Inc Facility: $278.8M allegedly secured by a first-priority security interest in (a) the One Dot Six Lease, (b) the capital stock of each Prepetition Inc. Subsidiary Guarantor (i.e., One Dot Four Corp., One Dot Six Corp. and One Dot Six TVCC Corp.). This facility is owned by Harbinger and there is $322M outstanding as of the petitoin date. LightSquared LP Facility of $1.5B. Amounts outstanding under the Prepetition LP Credit Facility are allegedly secured by a first-priority security interest in (a) substantially all of the assets of LightSquared LP and the Prepetition LP Subsidiary Guarantors, (b) the equity interests of LightSquared LP and the Prepetition LP Parent Guarantors (except LightSquared Inc.), (c) the equity interests of the Prepetition LP Subsidiary Guarantors and (d) the rights of LightSquared Inc. under and arising out of the Inmarsat Cooperation Agreement. As of the petition date, $1.7B of this facility was outstanding.
More details related to the history of the Company and the discussions with prepetition lenders, as well as first day motions follow. On Schedule 1 of the document, the list of Ad-Hoc Secured Group of Prepetition LP Lenders (represented by White & Case) were listed as:
  • Appaloosa Management
  • Capital Research
  • Fortress 
  • Knighthead
  • Redwood Capital
Some of the most prominent distressed investors out there. LightSquared is being represented by Milbank with Moelis and Alvarez Marsal as their FAs.  Harbinger is being represented by Weil Gotshal. 

Docket #13 discusses adequate protection for prepetition secured parties. The document states that each prepetition secured party is "protected by an equity cushion" but in exchange for diminution of value in respects of the cash collateral, they will be given replacement liens, superpriority claims, and reimbursement of fees and expenses. 

Further on in the document there is discussions on the value of LightSquared:
"As the Debtors’ advisors will attest at the Interim Hearing, in these Chapter 11 Cases, the Prepetition Inc. Lenders are sufficiently protected by an equity cushion of 33% at the low end and 63% at the high end. As the Debtors’ advisors will further attest at the Interim Hearing, the Prepetition LP Lenders are also sufficiently protected by an equity cushion of 68% at the low end and 82% at the high end. Both equity cushions are significantly above the amount typically found satisfactory by courts in this and other districts."
What is the LightSquared pre-petition debt worth? I mean - that's nearly impossible to answer without further clarity on the FCC issue. If FCC clears the way, the spectrum could be worth a significant amount, especially considering Sprint doesn't hold a blocking position anymore since it terminated its agreement with LightSquared in March of this year. With 51MHz of terrestrial and LBand ATC spectrum the value could be tremendous for players looking to hole up capacity on their networks. But if terrestrial is not in the cards, value would be significantly less simply for the amount of customers using the service.

The presence of DISH network and its savvy chairman Charles Ergen has gotten more people talking about this name in the past week. If you remember, DISH was involved in the DBSD North America and Terrestar bankruptcies in the past few years (both S-band, 2 GHz). For the wireless mavens out there, we have known for some time that the S-band has no know interference issues markedly different than the L-band.  

Assets here: Satellites (one still needing to be launched) and a lot of spectrum which could be worth very little or a lot more. It looks like the majority of the spectrum is at LightSquared LP and SkyTerra (Canada), [which is 100% owned by Lightsquared LP].  At 70 cents on the dollar against $1.7B outstanding for the LP facility = lenders valuing LP at $1.2B.  If you assume that without FCC approval of terrestrial use the spectrum is worth $0.05 MHz/pop, it looks like the market is given a decent probability that the FCC allows L Band spectrum use as originally intended by LightSquared which would then sell this spectrum at a significantly higher valuation than $0.05 MHz/pop.

This is a fascinating situation, and we will try to keep you updated especially once the FA's report on the equity cushion comes to light.


Anonymous,  5/15/2012  

And Hawker?

Anonymous,  5/15/2012  

You need to add in the PV of the leases to Immarsat, as it is the owner of 1/2 the spectrum here.

Hunter 5/15/2012  

re: Hawker - I can't, with any certainty tell you / readers if secular decline or cyclical. I believe cyclical but not sure yet. And re: Inmarsat - you mean on the liability side?

Anonymous,  5/15/2012  

They lease 20 MHz from ISAT, so would net to net out the NPV of those lease payments before you see any value from that leased spectrum.

cig 5/15/2012  

Read Bronte Capital on Lightsquared. The FCC seems to be doing its job well, fortunately.


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.