NEW YORK (Reuters) - A member of a committee helping to oversee LightSquared's restructuring said on Wednesday he believes the company's plan to subordinate the claims of its largest creditor, Dish Network Corp (DISH.O) Chairman Charles Ergen, is fair.
Testifying in the U.S. Bankruptcy Court in New York, Christopher Rogers, a member of the independent special committee, said the plan is not an attempt to punish Ergen for what LightSquared views as his surreptitious methods of acquiring debt.
Rogers' testimony came during the opening day of what could be weeks of court hearings on LightSquared's proposed restructuring plan. The company is seeking approval by Judge Shelley Chapman to put the plan into effect and exit bankruptcy.
LightSquared filed for Chapter 11 in 2012 after the Federal Communications Commission revoked its license to build a planned wireless network on concerns it could interfere with GPS systems.
Ergen bought up about $1 billion worth of LightSquared's senior loan debt, despite an agreement between LightSquared and its lenders that barred competitors from acquiring the company's debt. Ergen said he bought the debt in his personal capacity, not on behalf of Dish.
LightSquared and its main shareholder, Phil Falcone's Harbinger Capital Partners, sued Dish and Ergen, saying the latter had bought the debt on Dish's behalf, to circumvent the credit agreement and stack the deck for a Dish takeover. The sides are still waiting for Chapman to rule on that case.
In the meantime, LightSquared is moving ahead with a proposed restructuring that would subordinate Ergen's claims on the premise that they are not valid senior secured claims. It would stick Ergen with a long-term note while paying other lenders in cash.
His lawyers have called the plan a ploy to allow Harbinger to retain equity in LightSquared. But Rogers on Wednesday said the note would still eventually pay Ergen in full.
"We thought that was justified in this case," Rogers said.
Lawyers for Ergen shifted the focus to the viability of LightSquared's plan, grilling witnesses on whether LightSquared can realistically expect to regain the FCC's approval for its license. Though the company does not need such approval to effect its bankruptcy plan, the issue cuts to the heart of whether LightSquared is a viable company in the long term. That question matters especially for creditors such as Ergen, who may be paid over time rather than in cash.
Robert McDowell, a former FCC commissioner who is now a consultant for LightSquared on FCC issues, testified on Wednesday that he believes the company will get approval for the bulk of its broadband rights by the end of 2015.
But McDowell was on the commission when it revoked LightSquared's license in 2012, and lawyers for Ergen reminded him that it had good reasons for doing so, namely interference concerns raised by members of the GPS industry.
When pressed by a lawyer for Ergen during cross-examination, McDowell acknowledged that the FCC places high importance on concerns raised by GPS companies, which have urged the agency not to act until the potential interference effects have been more deeply studied.
Still, the fate of LightSquared's plan likely rests more on its treatment of Ergen than on any other issue. That's why Chapman's ultimate decision in the company's lawsuit against Ergen is critical. If Chapman finds that Ergen did not act surreptitiously, she is unlikely to confirm a plan that proposes treating him differently than other lenders.
That could create a major time-crunch for LightSquared, whose bankruptcy funding is expected to run out sometime in early or mid-April.
The hearing on the plan is expected to continue on Thursday with testimony from LightSquared Chief Executive Doug Smith.
The case is In Re LightSquared Inc, U.S. Bankruptcy Court, Southern District of New York, No. 12-12080.
Reporting by Nick Brown; Editing by Marguerita Choy