LightSquared filed for Chapter 11 bankruptcy protection on Monday after intense negotiations with creditors who had requested that the company’s backer, hedge fund manager Philip Falcone, step aside.
LightSquared listed debt and assets of more than $1 billion each in a Chapter 11 filing in U.S. Bankruptcy Court in New York.
Harbinger Capital Partners, Mr. Falcone’s hedge fund, had invested about $3 billion in LightSquared and owned about 74% of it as of Jan. 27. Mr. Falcone also had served on LightSquared’s board.
Creditors asked for Mr. Falcone’s departure when they gave the company a weeklong extension on April 30 to stave off a default and keep trying to renegotiate its debt, according to a person with knowledge of the matter.
LightSquared last week received a second weeklong extension from creditors, delaying a potential bankruptcy, a person with knowledge of the matter said at the time. Bondholders earlier gave Mr. Falcone a deadline of April 30 to revisit a waiver that avoided triggering a technical default on its debt.
Mr. Falcone’s plan to deliver high-speed wireless to as many as 260 million people depended on winning Federal Communications Commission approval to convert airwaves originally designated for satellite service to spectrum for land-based radio towers. LightSquared invested $4 billion in airwaves and reached deals with more than 30 partners, including Best Buy.
LightSquared hit a roadblock in February when the FCC said it would withdraw preliminary approval for the company’s network after government tests found that the signals would interfere with global-positioning systems.
The decision followed a yearlong lobbying fight between LightSquared and GPS users and providers. The Coalition to Save Our GPS, a group formed to oppose LightSquared’s plans, included package shippers FedEx and United Parcel Service, GPS-unit maker Garmin and farm-gear maker Deere & Co.
Mr. Falcone said April 4 that he was considering bankruptcy for LightSquared, though he would rather get the government to swap his spectrum for that controlled by the Defense Department.
Harbinger’s main hedge fund, Harbinger Capital Partners Master Fund I, had $1.07 billion invested in LightSquared’s debt and equity as of Jan. 27, according to documents seen by Bloomberg News. The documents detailed a $190 million loan Harbinger took from securities firm Jefferies Group on Jan. 30 while it still awaited news from the FCC. That loan, made at a 15% interest rate, was almost triple what the riskiest corporate borrowers pay. The loan would default if the FCC revoked its license on a final basis, and the license was no longer subject to review by the FCC or any court, according to the papers.
Mr. Falcone began investing in LightSquared’s predecessor, SkyTerra Communications, in 2005. Harbinger wrote down the value of its LightSquared position by 59% last year because of concerns about winning regulatory approval.