02.12.12

Grabbit, Runne and Sue…

Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 5:48 pm by timfarrar

With apologies to Private Eye, it seems like everyone is trying to grab as much of LightSquared’s cash as they can, while there is still some left in the bank, and run away before they get sued. I’m told that Inmarsat is poised to assert completion of its Phase 1 transition (freeing up two 2x5MHz blocks of spectrum, known as 5L and 5H) on February 18, which would entitle it to a payment of $56.25M. In addition, it appears that the spectrum blocks used for augmentation signals by Starfire’s precision GPS receivers will be moved in late March (though it should be noted that this shift does nothing to protect these receivers from experiencing interference if LightSquared was ever to begin terrestrial operations).

However, once this relocation has taken place, Inmarsat should also be able to claim completion of the Phase 1.5 transition by April 1 (freeing up the lower 2x10MHz block, known as 10L) under the April 2011 amendment to the Cooperation Agreement, which I’m told would entitle it to another very substantial sum of money (many tens of millions of dollars) over and above the $40M already paid. This is an additional cash outlay that I had not considered in my previous estimates of LightSquared’s cashflows, and although it is not enough in itself to exhaust LightSquared’s remaining cash resources, it certainly could be another potential hit to the ultimate 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 date).

UPDATE (2/14/12): I’m told that Starfire will be relocated to somewhere in the 1536-1544MHz spectrum block, implying that Inmarsat’s focus is on strict compliance with the terms of the Cooperation Agreement (so they can claim more money from LightSquared), rather than on creating a long term solution for these users (which would involve placing the augmentation downlinks close to the top of the band around 1559MHz). That’s unsurprising because Inmarsat emphasized previously, in a confidential June 2010 letter to the FCC (included in the recent FOIA production), that they would only be doing the work LightSquared paid them to do, and nothing else.

At the House Aviation Subcommittee hearing last Wednesday, it was indicated that the NTIA’s report and recommendations would be transmitted to the FCC “shortly”, and although the report was not released on Friday evening, it seems all but certain that we should hear more this week, potentially followed very quickly by an FCC ruling to initiate an interference/receiver standards proceeding. The testimony of Mr. Porcari, Deputy Secretary at the Dept of Transportation, and co-signatory of the Jan 13 Excom letter could not have been more clear in stating that “[The Obama Administration has] concluded that [LightSquared's] current plan to provide such services adversely affect GPS signals” and “LightSquared’s proposals are fundamentally incompatible with GPS use”, so it now seems that the FCC will be bound to indicate that LightSquared will not be permitted to build and operate a terrestrial network for the foreseeable future.

However, the precise language of this ruling will be critical in establishing whether a Material Adverse Change has occurred under LightSquared’s debt covenants. With Inmarsat apparently intent on securing as much money from LightSquared as it possibly can in advance of a bankruptcy filing, and no chance of a favorable ruling from the FCC, LightSquared’s creditors will now presumably be keeping their fingers crossed that in the very near future they have the chance to assert that an event of default has occurred, and stop LightSquared’s cash from draining away, perhaps even before the next payment is made to Inmarsat on February 18.

2 Comments »

  1. TMF Associates MSS blog » Off to court we go… said,

    February 14, 2012 at 8:08 pm

    [...] with Inmarsat poised to claim another $56.25M from LightSquared early next week, and the 90 day bankruptcy window for challenging the $40M paid to Inmarsat in November expiring on [...]

  2. TMF Associates MSS blog » I have a cunning plan… said,

    February 15, 2012 at 5:48 pm

    [...] LightSquared may have cash expenses totaling nearly $200M between now and early April, of which the vast majority would go to Inmarsat. If Mr. Falcone continues to resist then I suspect the next step may be for Mr. Icahn and others to [...]

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