If I’m right and DISH is determined to win a significant AWS-3 spectrum position at the end of the auction, then it seems highly likely that one or both of AT&T and Verizon will leave the auction with a significant shortfall in AWS spectrum in major cities including New York, Los Angeles and potentially several other markets.
Then it seems Ergen’s calculation is that he will have significant leverage to force AT&T and Verizon to deal with him and lease spectrum on his terms (including supporting interoperability for his AWS-4 spectrum holdings). However, one way for AT&T and Verizon to freeze Ergen out and avoid having to make a deal would be for them to instead purchase 2.5GHz spectrum from Sprint. Its plausible that Sprint could raise as much as $10B relatively easily from selling say 30MHz to each of AT&T and Verizon, leaving Ergen holding an asset with no clear route to monetization and a buildout deadline which will start to become a pressing concern within a year or two (especially if DISH has not yet standardized the AWS-4 band).
So does Masa Son want to boost DISH’s position at the expense of AT&T and Verizon, or would he like to get revenge for DISH’s actions in the Sprint & Clearwire bidding wars last year? If DISH is stuck with billions of dollars of spectrum it can’t lease, then DISH will be disadvantaged in mounting a competing T-Mobile bid, when Sprint renews its attempts after the 2016 Presidential election, because DISH will struggle to raise as much cash and DT will be reluctant to accept shares whose value is based primarily on spectrum assets with limited utility (remember that T-Mobile isn’t in a position to create an ecosystem for AWS-4, unlike AT&T and Verizon).
In fact, Sprint could point to DISH’s reserves of spectrum as providing the basis of a new competitor in the wireless market, and could even gain the tacit endorsement of AT&T and Verizon for a purchase of T-Mobile. In addition, by selling some spectrum now, Sprint raises money to participate in the 600MHz incentive auction (where DISH may not have the resources to compete) and gets out from under the spectrum screen limitation. So it might well make sense for Masa to make a choice which boosts AT&T and Verizon, rather than cooperating with DISH.
Incidentally, another side-effect of the AWS-3 auction prices is that Phil Falcone is now scrambling to get back into the LightSquared reorganization plan, as his argument that LightSquared’s spectrum should be valued at more than the debt gains support from these price benchmarks. For example, the unpaired uplink 10MHz B1 block (1700-1710MHz), currently valued at almost $1.3B, will be used to argue that LightSquared’s two 10MHz uplink blocks alone are worth double this sum. So the obvious counterstrike from Ergen is likely to be to try and blow up the reorganization plan and force LightSquared into liquidation.
I understand conversion to Chapter 7 would invalidate the Inmarsat Cooperation Agreement, and thereby make it much harder for anyone to take on the risk of buying LightSquared’s assets. Of course, that is unlikely to worry Ergen (he would be expected to take a hard line with Inmarsat in any case), and would provide an opportunity to potentially buy LightSquared’s satellite assets for considerably less than the value of the LP debt and boost Ergen’s attempts to corner the spectrum market. As one person close to the case told me, such an outcome would literally make Judge Chapman cry.
UPDATE (11/26): Another interesting question is the status of the 650M MHzPOPs of EBS spectrum (38MHz) that NextWave holdco controls in New York City. I would expect hectic bidding to secure access to that spectrum, if DISH turns out to be the winner of much of the AWS-3 spectrum in New York. Of course, Ergen has likely already thought of that, and I’d speculate that he might even have locked up an agreement to buy that spectrum block in advance of the AWS-3 auction, making it harder for Verizon and AT&T to address their potential spectrum shortfall in the New York market.
That seems to be a pretty good summary of what Charlie Ergen has told SNR and NorthStar, the Designated Entities (DEs) which appear to be doing a lot of the bidding in the AWS-3 auction. We’re still seeing multiple bids on the New York and Los Angeles J block licenses (which are now priced at over $3.6B for just these two licenses), and so its possible that DISH’s DEs may now hold in excess of $10B of Provisionally Winning Bids (PWBs) between them.
Its interesting to note that because Ergen is a designated bidder for American AWS Wireless I LLC (the DISH subsidiary), he wouldn’t be allowed to communicate with either SNR or NorthStar during the auction. So they must be bidding in line with instructions he gave them previously, and he can’t change course in the middle of the auction, if bidding has gone well beyond what even he expected. Ergen could have set a limit on the $/MHzPOP that he is prepared to pay for a single license and/or an overall dollar cap on bidding, but it looks like neither of those factors have been affecting the bidding to date. That suggests to me that Ergen is more likely to have imposed an overall dollar cap, which could perhaps be as much as $8B to $10B each, before the 25% discount on the PWBs that each DEs is expected to receive.
A plausible bidding strategy for each DE, which requires no communication after the auction starts (and seems to roughly accord with what happened after DISH likely switched to the unpaired spectrum in Round 17), could then be something like:
Bid in every round until you see high activity in the unpaired spectrum (a sign that DISH has switched away from the AWS-3 blocks), then defend what you have, no matter what the price of each license. When you reach the overall dollar cap, drop the G block licenses first, then the H and I blocks, but keep the J blocks.”
So now the question is whether, with a weekend to think about it, AT&T and Verizon decide to leave Ergen holding the J-block licenses in major cities. Is there a point at which DISH becomes so financially stressed by the burden of spending perhaps $15B on spectrum, that it is in a weaker position after the auction than it was before (e.g. with insufficient resources to bid for T-Mobile or build out its spectrum)?
Does it matter if AT&T and Verizon are unable to deploy as much AWS-3 spectrum in major cities as they wanted? How much leverage can they exert at the FCC if DISH fails to build out these licenses? And should AT&T or Verizon force up the price of the unpaired spectrum to a level which puts the Ergen-led LightSquared reorganization plan in jeopardy? We’ll see in the next few days whether AT&T or Verizon are able to play Ergen at his own game.
UPDATE (11/23): Thinking further about the end-game, it looks to me like the mysterious spin-off of DISH’s spectrum, mentioned briefly by Ergen in the Q3 results call, is the likely way forward if one of the DEs is successful in acquiring a large block of spectrum. DISH could inject its existing spectrum assets into this entity and raise debt against the combined spectrum portfolio. Then (given the FCC rules against selling DE spectrum for at least 5 years), DISH would have a standalone entity it could spin-off to shareholders, and could lease or all of its spectrum holdings to the major operators, just like Grain Management.
After the AWS-3 auction reached its reserve price of $10.066B for the 50MHz of AWS-3 spectrum (1755-1780MHz uplink/2155-2180MHz downlink) in Round 12, the most notably feature of the auction so far has been in the high level of bidding activity for the largest cities, such as New York and Los Angeles. As shown in the table below, in the first 12 rounds, there were up to 8 bids per round for the three main (BEA) licenses in these cities, implying that multiple players other than the major operators (AT&T, Verizon and T-Mobile) were bidding.
By now it would have been expected that the three operators would sort themselves out and bid on a self-selected subset of licenses (e.g. AT&T for 20MHz in H+I, Verizon for 20MHz in J and T-Mobile moving to the smaller CMA G-block license as it did successfully in the AWS-1 auction in 2006). However, it appears that this has all been disrupted by DISH’s desire to drive up the price. DISH has presumably concluded, logically, that the major operators will have to buy the New York and LA licenses (plus a few other places such as Chicago, Washington, Boston, San Francisco and Dallas) whatever the cost, so has been bidding simultaneously across all of the main licenses in these cities.
Uniquely amongst the participants, DISH is also part of three separate bidding consortia: American AWS-3 Wireless I LLC, Northstar Wireless, LLC and SNR Wireless LicenseCo, LLC. Given Ergen’s interest in pushing up the price that the operators have to pay, it would not be in the least surprising if all three have been bidding simultaneously against one another for all of these licenses. The resulting higher level of bidding activity would potentially sway the decisions of AT&T, Verizon and T-Mobile, making them think they face more competition from each other than is actually the case, and thereby persuading them to bid more than they originally expected. After all, if AT&T thinks Verizon wants all 50MHz and Verizon thinks the same about AT&T, they are both likely to bid more aggressively, since both will think they had underestimated how valuable the spectrum is.
What happens next? DISH could potentially have instructed each bidding consortium to cease bidding at the same level, minimizing the risk that it would be stuck with licenses it didn’t actually want. That wouldn’t require any coordination, merely setting a near identical budget/price limit for each of the three consortia. Then I’d expect a sharp drop in bidding activity, probably later today or tomorrow, when DISH reaches its desired price point (to provide a high comparable for its other spectrum holdings) and probably switches to buy the 1695-1710MHz unpaired uplink block, where to date the price has lagged significantly due to a lack of competitive bidding. Recall that this unpaired uplink block is one of the best comparables for LightSquared’s valuation (where Harbinger is arguing that the 20MHz of uplink should be worth up to $5B), and so its clearly in DISH’s interests for the end price to be little more than the $580M reserve price (for 15MHz of spectrum).
Of course, DISH is in a win-win position: if Verizon, AT&T and T-Mobile bid up the price of AWS-3 then Ergen can claim his AWS-4 spectrum is worth even more, but if they call his bluff and leave DISH owning the key licenses in major cities (that will be needed as part of any AWS-3 rollout), then Ergen can demand interoperability for his current AWS-4 spectrum as a condition of selling the spectrum to those operators.
If this is actually what is happening, then I’d expect criticism of how the FCC has enabled DISH to game the system (by participating in multiple consortia), just like there was criticism of their decision to auction off the H-block earlier this year in what some likened to a “retail sale” to DISH. However, the result will be the opposite to the H-block, which only just reached the reserve price, because in this case the auction revenue will be significantly higher than expected. Nevertheless, I’d expect mobile operators to be even less enamored of DISH than they were already, because Ergen will have just cost them billions of dollars they didn’t want to spend, just like he cost Masa Son billions of dollars by forcing him to raise the price that Softbank paid for Sprint and Clearwire last year.
UPDATE (11/20): It seems that I may have been right, because the FCC announced on Tuesday afternoon that the reserve price of $10.066B was met for the paired spectrum blocks at the end of Round 13:
At the conclusion of Round 13, the provisionally winning bid amounts, net of any applicable bidding credit discounts, for the paired 1755-1780/2155-2180 MHz licenses (the licenses in Blocks G, H, I, and J) exceeded $10,0660,326,600, thus meeting the aggregate reserve price for these licenses in Auction 97.
However, at the end of Round 12, the total of Provisionally Winning Bids (PWBs) in these bands was already $10.375B. The PWB is calculated before bidding credits (of 25% for a small business) are applied. Thus holders of bidding credits must have held sufficient licenses for the total of net bids to still be below the reserve price (i.e. had bids with the 25% discount valued at more than $311M). That means these small bidders held licenses valued at more than $1250M at the end of Round 12.
Two of the three DISH entities (SNR and Northstar) both sought 25% bidding credits (despite apparently having credit agreements with DISH to fund their bids) so it appears likely that they were bidding aggressively throughout this period. Then we apparently saw DISH move its own bids over to the unpaired spectrum in Round 17, leading to a reduction in the number of bids for the large metro licenses. Given their use of bidding credits, it would not be at all surprising if SNR and Northstar emerge still holding billions of dollars of spectrum, funded by DISH, and it would be logical to take this approach (if DISH buys the unpaired spectrum at close to the reserve price, then it would have gained no benefit from using bidding credits, since the reserve price has to be met by the net bids). Of course the availability of bidding credits will probably also be a cause for further criticism of DISH’s apparent moves to game the system by pushing up the prices paid in the auction.
I’ve just released my new 69 page Globalstar profile, analyzing both Globalstar’s MSS business and their spectrum valuation and potential partnerships. Over the last month its been interesting to observe the rather hyperbolic comments from both supporters and opponents of the company, and unfortunately those on both sides appear poorly informed about the potential value of the TLPS spectrum and the growth of the MSS opportunity.
In the MSS business, its crystal clear that growth has fallen far short of expectations in the business plan presented to COFACE in summer 2013, and it is expected that Globalstar will need to make equity cures to address an EBITDA shortfall in 2015, and perhaps even at the end of this year. However, those amounts will be modest, nothing like the $200M raised by Iridium earlier this year, and so there is no need for concern that MSS challenges will disrupt Globalstar’s attempts to monetize its spectrum in the next year or two.
Nevertheless, it seems unlikely that the new Hughes-based devices will dramatically change this picture: MSS terminals offering WiFi links to smartphones but no standalone functionality have generally been fairly unsuccessful in comparison to self-contained communications devices (compare SPOT Connect vs SPOT or the original inReach vs inReach SE/Explorer), and low price terminals/consumer distribution channels have not altered the dynamics of the handheld market very much (for example, the SPOT Global Phone has not changed Globalstar’s business prospects materially). Its also little use selling a new device for $100 if the customer still has to choose from the existing handheld airtime plans (which have a four times higher ARPU than SPOT). So overall, we don’t expect Globalstar’s MSS business to generate enough value to match the $1B invested, or even the current COFACE debt.
While the MSS picture may not be encouraging, I’m more positive about Globalstar’s TLPS opportunity. It’s clear that Globalstar’s spectrum does have potential value to partners, since Globalstar came close to a deal with Google in early 2013, and we suspect a deal with a different partner was almost reached earlier this year. I also expect the FCC to approve TLPS without material concerns, although it seems likely to come in Q1 not Q4, and may involve giving up some L-band spectrum to Iridium, as happened in the past when Globalstar was seeking ATC authority.
The key question is therefore whether a partner can now be secured who will pay a substantial sum for access to the spectrum, from a limited universe of possibilities in the service provider category. Equipment and infrastructure providers are more likely to want to make money from selling equipment to Globalstar (and its service provider partner), than to pay Globalstar for access to the spectrum. The second question is then what the appropriate valuation would be if a deal can be struck: based on comparable valuations for high band spectrum and the alternative sources of spectrum out there (including AWS-3) it is hard to believe that anyone could seriously envisage a $6B or $10B valuation for TLPS. However, the debate should be about what Globalstar’s spectrum is worth, not whether it is worthless.
All of these issues are discussed in more detail in the report: we give specific forecasts for the MSS business by product through 2018 and explain what we believe to be the most appropriate valuation benchmarks for TLPS and who is now the most likely partner. Contact us if you’re interested in more information.
Today hasn’t been a great day for the MSS industry, with Kerrisdale Capital mounting an attack on Globalstar, and LightSquared’s bankruptcy process descending further into chaos, with Judge Chapman ordering the stakeholders back to mediation after the standalone reorganization proposal for LightSquared LP was withdrawn and the Special Committee threw up its hands in despair.
Fundamentally this debate comes down to whether investors (and more importantly potential spectrum buyers such as cellular operators) believe there is a shortage of spectrum, which will justify a higher valuation for spectrum assets. An answer to that broader question should become a lot clearer after the AWS-3 auction next month, as Charlie Ergen has been at pains to point out. After all, DISH has declared its intent to bid, apparently in order to push up the final price that others pay.
Some clearly believe, like Macquarie who published a report last week claiming that the AWS-3 spectrum will sell for $1.30 to $1.50 per MHzPOP, and DISH’s spectrum could be worth more than their current estimate of $1.75 per MHzPOP. However, the FCC is less sanguine and has set a relatively high reserve price (sufficient to meet the $7B required to fund First Net) in the expectation that bidding may not be very aggressive. Chairman Wheeler is also clearly nervous about the incentive auction, warning cellular operators at CTIA last month that:
Many broadcasters have been led to believe that the demand for mobile spectrum really isn’t as your industry has claimed.
As a result, they believe that wireless carriers won’t fully participate in the auction. Whether or not wireless carriers show up with sufficient demand to incent broadcasters to participate is something only you control.
But, if that is the case, if mobile operators don’t put their money where their mouths have been, the future of spectrum policy will begin to look a lot different.
Remember that Greenhill has just estimated that bids in the incentive auction could total $45B (of which $33B would be paid to broadcasters), even at what some would consider the relatively modest price for low frequency spectrum of $1.50 per MHzPOP. The price for AWS-3 should be rather lower than that, and to me it would not be at all surprising to see the final auction receipts total less than $15B ($0.80-$0.90/MHzPOP).
Even that total, of up to $60B, may prove a significant burden for cellular operators now that AT&T and Verizon are loaded with debt after their purchases of DirecTV and the Vodafone stake respectively and have much less incentive to bid the price up aggressively (especially in the incentive auction, since spectrum will potentially be reserved for smaller players).
Perhaps there will be an external savior in the form of a new entrant? That’s what one Globalstar bull, Odeon Capital, apparently believes, suggesting today that “Today, carriers and cable companies provide access, you need them to use wifi. Ultimately, TLPS provides an end run around the traditional gatekeepers, and we think that’s a very compelling incentive.”
However, its important to note that Google looked at buying both Globalstar and Inmarsat in late 2012/early 2013 (at a time when Globalstar’s share price was a lot lower) for Project Loon, but that proposal was rejected by Larry Page (note that the companies are not named, but Astro Teller specifically stated that there were six months of negotiations with “large companies” to buy “a relatively thin piece of harmonized spectrum” and its been confirmed to me by multiple independent sources that the targets were Globalstar and Inmarsat).
Amazon is another mooted investor in wireless spectrum, and a prospective Globalstar partner, but now that its Fire phone has failed to set the world alight, it seems increasingly unlikely to spend billions of dollars on spectrum.
So if its hard to see a new entrant saving the day, what will happen to spectrum values? It certainly doesn’t mean that Globalstar or LightSquared’s spectrum is worth nothing, but does suggest that (as I’ve long predicted) the spectrum bubble may soon start to deflate. The bands that will likely feel the pressure first are those without an existing ecosystem (or that are not owned by large operators like Verizon and AT&T with the power to create one).
On the other hand, unless you can find someone to pay for and use your spectrum, how do you monetize it? Do you build out your own network, like Clearwire and LightSquared tried to do? Or do you just sit and wait for conditions to improve? It certainly seems plausible that a number of spectrum owners, including DISH, may now have to choose between these two, relatively unpalatable, options.
The Independent Group has today (September 26) issued a new statement on MH370.
The previous statement dated September 9 is available here.
In summary, we continue to believe that the ‘most probable’ end point is located further to the south than any of the currently announced potential search areas.
The report I wrote jointly with LS Telcom on “Mobile spectrum requirements estimates: getting the inputs right” has now been published and is available here. This report critiques the ITU Speculator model, concluding that (as I noted earlier), the Speculator model traffic assumptions vastly exceed any reasonable traffic density that can be expected in 2020, even at events such as the Superbowl or World Cup Final.
The analysis in this report was also the basis of the poster on “Lies, Damn Lies and Mobile Statistics: Forecasting Future Demand for Wireless Spectrum” that I presented at TPRC42 in Arlington VA last weekend, and I was very gratified to receive an award for the best poster at the conference. If you are interested in discussing this work further, then please do get in touch.
So the latest LightSquared bankruptcy plan has finally been filed, in advance of a status conference planned for Monday. Though the plan provides alternative options depending on whether Ergen’s SPSO decides to support it, the plan grants SPSO an allowed claim of $900M (for an original investment of $700M) if it votes in favor. That’s less than the $1B allowed claim indicated back in July, suggesting that quite a bit has changed structurally in the last month in order to come up with a simple plan that should be approved by the judge. However, it shouldn’t be assumed that SPSO will object to this change, as the $100M decrease in SPSO’s allowed claim may be part of a deal under which Fortress drops the prospect of recovery on its LP Preferred Shares.
Under the new plan, the non-SPSO secured debtholders plus SPSO and MAST (which holds $300M+ of LightSquared Inc. loans) will now only receive a pro rata share of LightSquared’s new $1B Term Loan plus the equity in the company. In other words the $1B Term Loan will cover less than half of the allowed $2.3B-$2.4B in secured debt and interest, suggesting a preference for the company to be rather less indebted than previously planned. The debtholders (including potentially SPSO) will also back a new $500M working capital facility and SPSO will remain a non-voting participant in the capital structure.
This structure seems designed to ensure that the plan is easy for the judge to approve and Falcone is cut out, unless he can find the money to participate in an auction, where the minimum bid must be sufficient to pay the allowed claims in full in cash minus the new $1B Term Loan (though that and the working capital facility would also need to be refinanced). In other words, if Phil Falcone wants to retain control of LightSquared (or if anyone else wants to bid), then he would need to find $1.4B+ in cash plus a $1.5B debt facility just to participate in the auction. If there isn’t an auction, then Harbinger receives nothing whatsoever, even for its Inc. subordinated debt (Class 7), let alone its equity.
Moreover, the plan sets out as one condition that the plan proponents shall “promptly commence and prosecute a Harbinger Litigation Action” to “stay, bar, enjoin, preclude, or otherwise limit Harbinger and/or any of its Affiliates from asserting against the GPS Industry and/or the United States of America any claim or cause of action that is or directly affects any property of one or more of the Debtors’ Estates”. Prior to the Effective Date of the Plan, the company must have received a ruling from the bankruptcy court which grants this request.
As a result, there’s little reason for Phil to agree to any of this, and the prospect of Harbinger raising nearly $3B to participate in the auction seems pretty remote. However, if Harbinger doesn’t agree to the plan then it won’t receive any of the releases granted to other parties (including Ergen, if SPSO votes in favor of the plan). So any LightSquared investors who’ve lost money would potentially then follow the strategy set out by SPSO earlier this year and sue Falcone personally. In fact, even if Harbinger continues to sue the US government for its own losses (if it is even possible to separate those from claims that would belong to LightSquared itself) then LightSquared investors could seek to claim any proceeds from that effort.
Now we have to see whether Ergen (or perhaps EchoStar or even DISH) wants to bid for all of LightSquared (which seems unlikely assuming he agrees with the current plan), or whether Falcone is able to find backers to participate. It seems less likely that the other Ad Hoc debtholders would bid in the auction, because those existing debtholders that do want to exit (presumably including MAST) can and probably will sell their claims to the holders like Fortress who want to remain in the capital structure. Given the implausibility of anyone backing Harbinger with $3B of new money to refinance LightSquared while Falcone is suing the FCC, undoubtedly there will be plenty of fireworks over the next few weeks as Phil seeks to avoid what looks like his inevitable doom.
The independent group analyzing the loss of MH370 has now issued a new statement, responding to the release of the June 26 ATSB report.
After the NTIA filed a fairly devastating letter with the FCC on July 1 (which went completely unnoticed in the press), it seems that Phil Falcone decided to use the July 4th holiday to assert his own independence from LightSquared, and attempt to blow up both the company and its relationship with the US government.
The NTIA letter attaches a September 2013 letter from the Department of Transportation, which states that “the Department questions whether the Commission has the necessary and sufficient information before it to approve the handset proposal at issue in the Public Notice. Again, to the Department’s knowledge, there has not been any robust interagency effort to examine or test LightSquared’s proposal, to probe the underlying assumptions, or to consider feasible alternatives.” The NTIA states that “the agencies are not in complete agreement that the Uplink Assessment has adequately addressed these issues to support a recommendation to NTIA and the FCC” and “NTIA agrees with DOT that the FCC should seek to ensure that LightSquared’s handset proposal is adequately supported by data and a full understanding of the potential impacts on GPS receivers.”
This letter comes in conjunction with the June 20 FCC workshop, which appeared designed to demonstrate that the FCC was seriously investigating whether interference concerns could be resolved, but was structured in a manner that was very supportive of GPS. It also immediately follows LightSquared’s proposal of a new plan for emergence from bankruptcy, which is supposed to be filed with the court on Monday July 14. The NTIA letter means that there is no clear roadmap even to approval of the 20MHz of uplink spectrum that LightSquared assumes is certain to be available, significantly undermining the foundations of the new plan.
More importantly, Falcone’s actions over the last week basically destroy any prospects of further progress with the FCC. While his RICO lawsuit against Ergen and DISH can be largely ignored, the decision to sue the US government and FCC on Friday, is expected to freeze further contacts with the FCC while the lawsuit is in progress.
The likely way forward is now for LightSquared to sue Harbinger in order to prevent the lawsuit going forward, since such lawsuits would normally be regarded as assets of the bankruptcy estate, belonging to LightSquared rather than its shareholders. Harbinger alleges that all negotiations with the FCC prior to the March 2010 takeover were directly with Harbinger’s lawyer (Henry Goldberg), not “LightSquared” (at that time SkyTerra) but it is far from clear that would overcome the presumption that the claims belong to LightSquared.
In any case, the names of the underlying companies changed after the Harbinger acquisition: what is now LightSquared Inc. was at that time Harbinger Global Wireless (HGW), which was the company (represented by Goldberg) that was formally given permission to buy SkyTerra. So even if there was an agreement with HGW (which is doubtful), its claims should now belong to LightSquared Inc. and the bankruptcy estate.
There are several other curious statements in the lawsuit, most notably that the publication of the National Broadband Plan in 2010 was delayed to coincide with the Harbinger acquisition of SkyTerra. Secondly, the amount of Harbinger’s losses was set at $1.9B, but that is far in excess of the amount of investment that Harbinger made in LightSquared after March 2010. Finally, the concept that there was an agreement with Harbinger under which the ATC modifications were granted in exchange for the commitments made as part of the takeover is not part of the formal record: the ATC mods order (which Harbinger claims the FCC has not upheld) is completely separate from the approval of the takeover (which included the Harbinger commitments).
Overall, this marks a significant change in the bankruptcy case: Falcone is on the outside rather than the inside, and now it seems quite likely that the entire new plan will collapse in acrimony. Moreover, the company is on the verge of running out of cash, creating a further crisis in the very near future.
UPDATE (7/15): Yesterday LightSquared’s Special Committee finally recognized the reality of the situation by reaching an agreement with Charlie Ergen to convert his existing debt into a dominant share of the new first lien debt, and obtain an additional $300M first lien loan, replacing JP Morgan in the new capital structure. It was stated that there will be $1.6B of new first lien, with $1.3B from Ergen, and I would assume the remaining $300M will come from Fortress rolling over its first lien debt. Its unclear if Cerberus will also invest in the new second lien tranche, and it certainly seems highly implausible that Harbinger will accept its proposed treatment under the new plan, since this would bar Harbinger from asserting claims against the FCC or Ergen, and therefore the probability of any recovery for Falcone is significantly diminished. It therefore seems highly likely that, as I predicted, the next stage of the bankruptcy case will be litigation between LightSquared and Harbinger, while Ergen just has to sit back and enjoy Phil Falcone’s discomfort.
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