01.24.12

Who to sue?

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 8:53 pm by timfarrar

After some uncertainty, it appears that LightSquared’s debtholders are gradually coalescing around Mr. Icahn’s view that they should invoke the MAC clause in the debt covenants and force LightSquared into bankruptcy immediately after an unfavorable FCC ruling, assuming that comes in the next couple of weeks. The key reason for this would be that LightSquared is due to pay Inmarsat $56.25M on February 18 (18 months after LightSquared gave the Phase 1 notice to Inmarsat under their Cooperation Agreement) and that sum of money is potentially big enough to make a material difference to the ultimate recovery, assuming that a liquidation is the eventual outcome of the bankruptcy case.

As debtholders get increasingly angry about this debacle, it also seems that they are looking around for other people to sue. Interestingly, it was suggested to me that (in addition to Harbinger) one potential target would be UBS, because the extent of the GPS interference problems may not have been disclosed fully at the time of the $586M February 2011 debt offering (UBS were the arrangers for this loan).

I for one had already blogged about the potential extent of the GPS interference issues in January 2011, based on testing that I had been told about by a major equipment manufacturer. In that case the engineers were so astonished by LightSquared’s proposed power levels that they brought in their personal car and handheld GPS receivers and noted considerable interference many hundreds of meters away from the test transmitter. In particular, it was pointed out to me that third order modulation interference into the middle of the GPS band was essentially an unsolvable problem under LightSquared’s original 10L and 10H configuration.

As a result this company had already concluded that (at the very least) use of the upper band spectrum was infeasible, well before the loan was sold to investors, and it can hardly have been long after that before LightSquared started negotiating with Inmarsat over the revised spectrum plan which was signed on April 25. Indeed my discussions with many knowledgeable people in mid-March (at the Satellite 2011 conference) indicated that everyone (including people with connections to LightSquared) already believed that use of the upper band would never be feasible (Note: the Field of Dreams reference in this link is still my all-time favorite – so thanks again to the unnamed satellite industry executive who noted the Chisholm, MN connection).

6 Comments »

  1. ORBITRAX said,

    January 25, 2012 at 5:00 pm

    The more compelling question becomes… IF, and I do mean IF there is any truth/connection to the information coming out of the investigation by the Unsecured Creditors of the Open Range Bankruptcy pointing to “tortious interference” by the FCC / USDA RUS. Then that might indicate that Lightsquared was a “indirect party” to that interference, and what testimony Falcone and company might provide if they go down with the Lightsquared ship.

    At least from an observers viewpoint, the recent resignations from the FCC and the actions by the DOJ claiming “Executive Privilege” over evidence accumulated by the Unsecured Creditors Committee, via he Claw Back provision, in the Open Range Bankruptcy appear to imply potential impropriety by the FCC/RUS/EOP.

    ORBITRAX

  2. timfarrar said,

    January 26, 2012 at 6:42 am

    While there may be some questions to be answered in the Open Range bankruptcy, its certainly not the “more compelling question” here. Open Range has only lost ~$200M, whereas the scale of losses in LightSquared could eventually come close to Iridium and Globalstar a decade ago ($5B each in those bankruptcies). In addition, Open Range was never that important to Globalstar or LightSquared (except perhaps as an example of how an ATC network might be implemented), given Open Range’s annual spectrum lease payments to Globalstar were in the single digit millions of dollars.

    Open Range’s case could be one forum in which some information is revealed, but it will be at best a sideshow to the innumerable other fights that we will see here. Indeed LightSquared itself might end up suing the FCC in the event of an adverse ruling, if the company follows through on its recent threats. I’d also suspect that ultimately Sen. Grassley is likely to succeed in his quest for the FCC’s communications, and we are now also facing the prospect of hearings in the House on the LightSquared approval process.

  3. ORBITRAX said,

    January 27, 2012 at 7:57 pm

    While it is true that Open Range has only lost ~200MM, versus Lightsquareds potential ~3B. Lightsquareds loss would not contain any Government funding. The same can not be said for Open Range.

    While over in the Open Range Bankruptcy filings today by the USDOJ, as well as snippets of the testimony under oath by Adelstein. The testimony clearly show that the RUS/FCC were in conversations to move Open Range from Globalstar to Lightsquared in September 2010. Of course, Lightsquared would require a “waiver” of the “integrated service requirement” to allow “terrestrial-only” user terminals for Open Range in order to satisfy the RUS “Fully Locked Down Spectrum” loan covenants.

    A waiver that was not applied for until months later by Lightsquared, several days after the launch of Skyterra 1 satellite in mid-November and the issuance of the ensuing “Rocket Docket” by the FCC. So it appears that the FCC had a very strict timetable to provide Lightsquared a waiver so that Open Range could secure access to “Fully Locked Down” spectrum which was required by the RUS to re-engage funding. While it appears the FCC never saw the GPS interference issues coming which presumably caused the eventual termination of funding to Open Range by the the RUS, do to the inability of the FCC to issue Lightsquared it’s permanent waiver of the “integrated service” rule.

    http://www.loganandco.com/dockets/ORC/ORC_DKT_000537_081095_00122502_6856e776cf40236f9286a33e80ff61dc.pdf

    Particularly interesting in Section D. where the RUS’s Kuchno responded that the RUS “partially lifted” the restrictions on advances to Open Range in late 2010 while operating under a STA, because the “RUS reached a position with Open Range where Open Range was working toward getting “that spectrum”.

    Perhaps some connection between the “Rocket Docket” and Open Range after all?

    Paul de Sa was the architect of Lightsquared’s terrestrial aspirations at the FCC, and was an active participant in the Globalstar ATC suspension.

    We wish Mr. de Sa best wishes on his new career path.

    ORBITRAX

  4. ORBITRAX said,

    January 27, 2012 at 8:52 pm

    Another interesting document on Adelsteins testimony. Especially starting at 68.

    http://www.loganandco.com/dockets/ORC/ORC_DKT_000537_081095_00122503_fafb7e447bff55c4997d67e634fb7a3.pdf

  5. TMF Associates MSS blog » Grabbit, Runne and Sue… said,

    February 12, 2012 at 5:48 pm

    [...] recovery for LightSquared’s creditors (unless they can recover this money via the lawsuits that will inevitably be filed against Inmarsat and other parties at a later [...]

  6. TMF Associates MSS blog » Extend and pretend… said,

    March 15, 2012 at 1:54 pm

    [...] Bizarrely enough, the price of LightSquared’s debt has been increasing over the last week, as the company failed to file for bankruptcy in advance of the termination of their agreement with Sprint, which is expected to come today, and LightSquared hired lawyers to sue the government for compensation, once their ATC license is revoked by the FCC. The primary reason for this delay appears to be that major investors (Icahn/Appaloosa/Beal, who may hold as much as $500M-$600M in face value of the $1.6B in first lien debt) are sitting on the sidelines, apparently unable to decide what they would do if they forced LightSquared into bankruptcy, while UBS (who may still hold $300M-$400M of the first lien debt) certainly do not want a bankruptcy (because then they would probably become a target for litigation). [...]

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