LightSquared Restructures with Chapter 11 Bankruptcy

Virginia’s LightSquared Restructures with Chapter 11 Bankruptcy

In what some believe is a serious setback to satellite-terrestrial mobile communications in the U.S.A., the Reston, Virginia, wireless internet service company LightSquared, Inc., filed for debt relief under Chapter 11. Its May 14 petition was filed in the U.S. Bankruptcy Court for the Southern District of New York. LightSquared’s Canadian affiliate filed a parallel proceeding with the Superior Court of Justice, Toronto, Ontario.

LightSquared’s 4G Wireless Network

In addition to serving its wireless distribution partners, LightSquared’s “coast-to-coast integrated satellite 4G wireless network” is already providing mobile communication services to governments, the military, public safety, commercial transporters, and logistical operators – it assures those customers that mobile services will continue uninterrupted during the Chapter 11 restructuring process.

LightSquared (previously known as SkyTerra) launched its satellite in 2010 and is a wholesaler of wireless satellite-terrestrial mobile broadband services, it does not compete with its wireless retail customers. The owner is Philip Falcone, who is also the senior managing director of the New York hedge fund Harbinger Capital Partners (the parent company of LightSquared).

In a statement, Marc Montagner (CFO and interim co-COO at LightSquared) said the Chapter 11 filing was to allow for restructuring while preserving the private company’s value. The core problem stems from regulatory problems:

“The filing was necessary to preserve the value of our business and to ensure continued operations. The voluntary Chapter 11 filing is intended to give LightSquared sufficient breathing room to continue working through the regulatory process that will allow us to build our 4G wireless network.”

It’s in the Hands of the FCC

LightSquared was staged to provide 4G-LTE wireless broadband service to about 260 million Americans by year 2015. To accomplish its goal, the company needed approval from the Federal Communications Commission (FCC) to convert the spectrum of airwaves designated for satellite service over to land-based radio towers.

Having already garnered strong congressional and state support, LightSquared has been battling GPS industry leaders and the FCC for a year now. Industry giants like AT&T have openly criticized the FCC for not moving quickly to approve LightSquared’s acquisition and spectrum use, causing industry-wide delays.

Unfortunately for LightSquared, signal testing results released in December supported a finding of a 75% interference level with GPS receivers.

Also in December, U.S. Representatives John Conyers (D-MI), Devin Nunes (R-CA), Brian Bilbray (D-CA), John Campbell (R-CA) and Cliff Sterms (R-FL) sent a joint letter to the FCC. The House members asked the agency to “work towards a resolution of the dispute between LightSquared and the GPS coalition.” In a separate letter to FCC Chairman Julius Genachowski, Arizona’s Rep. Ed Pastor (D) urged a swift resolution of the complaints raised by the GPS industry.

The Coalition to Save Our GPS (including heavyweights FedEx, UPS, Garmin Ltd., and Deere & Co.) has expressed concerns about interference with GPS devices from LightSquared’s coast-to-coast 4G-LTE wireless broadband service. To accommodate the GPS industry’s concerns, LightSquared  “and private developers have released several inexpensive solutions that would insulate GPS devices from interference issues,” said Pastor, also clearly frustrated with delays in the FCC approval process.

Last February, Rep. Conyers was clearly exasperated with FCC Chairman Julius Genachowski for “delays in the approval process involving LightSquared’s proposed 4G-LTE wireless broadband network,” which would increase industry competition, lower the cost of mobile services to less affluent and rural communities, and encourage investment from new and existing service providers.

Also in February, the National Telecommunications and Information Administration (NTIA) reported to the FCC’s Genachowski that problems with GPS interference had not been resolved. The NTIA recommended that the FCC block approval of LightSquared’s “commercial network deployment,” which it did.

Creditors of LightSquared

Because LightSquared needs more time to work through the FCC regulatory process (which may take another two years), it had to keep its creditors at bay. With assets of $4.48 billion and debts of $2.29 billion, the Chapter 11 debtor’s unsecured creditors include Alcatel-Lucent ($7.3 million) and Boeing Satellite Systems, Inc. ($7.5 million). LightSquared also has a $322.3 million term loan arrangement with U.S. Bank NA, and a $1.7 billion outstanding obligation under its credit facility through Wilmington Trust FSB and UBS AG.