Last week it was reported that LightSquared had raised another $750M loan from UBS, to add to the $400M loan it secured from UBS back in July. Today it is also being reported that SK Telecom is considering an investment of up to $100M in LightSquared.
This is undoubtedly good news for LightSquared, although it appears that the new $750M loan is likely to be a refinancing of SkyTerra’s outstanding $750M in first lien debt, which would otherwise have become cash pay on October 1. Even so, Harbinger held the majority of the original first lien loan, and so if the $750M is all new money from third parties, this would enable Harbinger to inject as much as $400M to $500M of additional funding into the LightSquared venture, simply by rolling over its original first lien holdings into subordinated debt or equity. Given that Harbinger stated back in July that it was raising up to $1.75B, then this would appear to match with that target ($400M July loan + $750M September loan + $400M-$500M of new Harbinger equity + $100M of third party funding), although in reality there would only be $1B of additional funding for the network buildout (plus potential vendor financing from Nokia Siemens Networks, which has not yet been announced).
However, last week also brought more ominous news for Harbinger in the form of the FCC’s denial of Globalstar’s ATC waiver request. As we noted at the time, Harbinger faces aggressive buildout milestones and has a pending request for a waiver of the SkyTerra-1 satellite launch deadline. If the FCC is sending a signal to Harbinger that it will not tolerate missed deadlines due to funding problems, which was the principal rationale for the Globalstar ruling, then investors in LightSquared will have to worry about how valuable the spectrum assets would be if LightSquared failed or otherwise could not meet the FCC’s deadlines. Indeed Harbinger’s own “voluntary commitments” included the condition that the LightSquared “authorizations” (its ATC license and perhaps even its MSS license depending on the interpretation of this phrase) will automatically be “null and void” without any need for further action by the Commission if LightSquared fails to meet the buildout milestones.
In particular, the question arises of whether the FCC would impose costly buildout conditions on a potential purchaser of the spectrum assets, or possibly even veto a purchase by AT&T/Verizon on competition grounds. In our view, the Globalstar ruling introduces rather more uncertainty about whether it will be possible to guarantee active bidding in the event that the LightSquared assets are sold in the future (especially in a bankruptcy auction where approval of the transfer would have to be sought afterwards from the FCC), and thereby makes it harder to put a floor under the value of LightSquared’s spectrum.