Dish Network Corp Chairman Charles Ergen, the largest creditor of bankrupt wireless company LightSquared, said on Wednesday he believed LightSquared could be worth as much as $8.9 billion if it gained regulatory approval of its planned wireless network.
Testifying in U.S. Bankruptcy Court in New York, Ergen faced tough questions from LightSquared lenders who believe he had visions of effecting a Dish takeover at a lowball price. But Ergen said both he and Dish believed the company was worth a lot of money, and that Dish has gone forward with a $2.2 billion bid proposed last year, if not for a technical issue that forced it to walk away.
LightSquared, owned by Phil Falcone's Harbinger Capital Partners, went bankrupt in 2012, when the Federal Communications Commission revoked its license to operate spectrum out of concern it could interfere with GPS systems. Ergen then acquired about $1 billion of the company's senior loan debt, giving him a controlling stake in LightSquared's capital structure.
His motivations for amassing the debt are crucial to weeks of court hearings in which LightSquared is seeking court approval of a bankruptcy exit plan that would subordinate Ergen's claims. Whether Ergen is deemed by Judge Shelley Chapman to have acted improperly will be the key factor in whether Chapman approves the plan.
A group of other LightSquared lenders, along with LightSquared itself, have alleged that Dish revoked its $2.2 billion bid for the company in January after no competing bids were filed at auction, in hopes of making a lower offer in the future.
Ergen has blamed pulling the bid on a "technical issue," the nature of which has not been publicly discussed.
In Wednesday's testimony - the second time he has been compelled to testify in the case - Ergen said Dish was prepared to go forward with the bid if not for the technical concerns. He added that Dish may have been willing to increase the bid to $2.4 billion but did not have authorization from its board.
Dish, said Ergen, valued LightSquared at between $2.3 billion and $5.4 billion, while Ergen personally believed its spectrum would be worth between $5.17 billion and $8.9 billion to Dish, assuming FCC approval.
LightSquared's bankruptcy exit plan would subordinate Ergen's claims, repaying them in the form of a note ranking behind the other lenders, who would be paid in cash. Harbinger would also retain some equity in LightSquared.
The lenders on Wednesday made their case for why the plan is fair, implying through a harsh line of questioning that Ergen effectively pulled a bait-and-switch, initially earning the lenders' support for Dish's bid, then dropping the bid when he realized Dish could get the company for less.
The lenders last year advanced a restructuring proposal largely premised on a Dish bid, then unsuccessfully scrambled to enforce that bid after Dish walked away. They later joined forces with LightSquared on its proposed restructuring.
Ergen contends the plan treats his claims unfairly. LightSquared has argued in a separate lawsuit that Ergen built up his debt position illegally, and the sides are still waiting for a ruling from Chapman in that case.
The case is In re: LightSquared Inc et al, U.S. Bankruptcy Court, Southern District of New York, No 12-12080.
(Reporting by Nick Brown; Editing by Bernard Orr)