Milbank represents LightSquared, a provider of wholesale mobile satellite communication services and license holder or lessee of various US and Canadian spectrum assets, in its Chapter 11 reorganization cases. Milbank’s Financial Restructuring and Litigation Groups have been shepherding LightSquared through one of the most complex and litigious Chapter 11 cases in history. LightSquared filed for Chapter 11 on May 14, 2012, in the U.S. Bankruptcy Court for the Southern District of New York, after failed attempts to reach an out-of-court agreement with its creditors that would allow it to pursue a resolution of certain disputes pending before the FCC while forbearing on its obligations under its respective credit agreements.
Prior to commencing its Chapter 11 cases, LightSquared sought to develop an ancillary terrestrial network (“ATC Network”) that would integrate its satellite service with terrestrial ground stations to provide fourth generation long term evolution (4G-LTE) broadband mobile services all over the United States. In 2010, LightSquared obtained FCC authorization to build an ATC Network that would provide broadband coverage to at least 260 million people by the end of 2015. In February 2012, in response to allegations by GPS manufacturers that LightSquared’s proposed use of its spectrum could cause harmful interference with GPS devices, the FCC issued a notice proposing to suspend indefinitely LightSquared’s authorization to build out its ATC Network pending resolution of the alleged interference issues. LightSquared was unable to proceed with the build out of its ATC Network as a result of the FCC’s notice and has been working with the FCC and other governmental agencies and companies to resolve the alleged interference.
Many of the positioning and disputes in the Chapter 11 cases stem from the significant value of LightSquared's spectrum assets and the likely substantial increase in value following resolution of the disputes and proceedings pending before the FCC. This has led to the filing of various competing Chapter 11 Plans of Reorganization, third party investors spending considerable amounts of time and resources attempting to fund LightSquared’s exit from Chapter 11, a failed sale and auction process, a failed confirmation process and litigation.
In one of the more important litigations in the case, Milbank's Litigation and Financial Restructuring Groups joined forces to, among other things, commence and prosecute an adversary proceeding against LightSquared’s competitor Charles Ergen (“Ergen”), SP Special Opportunities LLC (“SPSO”), DISH Network Corporation (“DISH”), and EchoStar Corporation (“EchoStar”) contending that Ergen, acting through entities that he controls and dominates acquired a blocking position in LightSquared’s debt in violation of transfer restrictions in LightSquared’s Credit Agreement in a scheme to influence the Chapter 11 cases in a manner to acquire LightSquared’s valuable spectrum assets at a discount. Since both DISH and EchoStar were prohibited from purchasing LightSquared’s debt because they are competitors of LightSquared and contractually prohibited from owning the debt, Ergen, who is the Executive Chairman and controlling shareholder of both companies, purchased LightSquared debt through a wholly-owned investment vehicle, SPSO. From April 2012 to April 2013, Ergen sought to purchase enough LightSquared debt (and preferred equity) to block the approval of any plan of reorganization he did not support.
By May 2013, DISH through SPSO had acquired a blocking position in LightSquared’s debt. Another investment vehicle, L-Band Acquisition LLC (“LBAC”)—owned first by Ergen and eventually by DISH—made a $2 billion unsolicited cash bid for certain of LightSquared’s spectrum assets. DISH believed that its bid, through LBAC, for LightSquared would be successful because, through SPSO, it had substantial leverage over any plan of reorganization that would not result in LightSquared’s assets being transferred to LBAC. In July 2013, DISH/SPSO coalesced other secured lenders to support and file a Chapter 11 Plan calling for the sale of certain of LightSquared’s assets to LBAC/DISH, which bid LBAC ultimately withdrew after the Court-sanctioned auction was canceled by LightSquared’s Board Special Committee.
On November 15, 2013, LightSquared filed a complaint (1) against SPSO for declaratory relief, (2) against SPSO for breach of contract, (3) against SPSO for disallowance of its claim under the Bankruptcy Code, (4) against SPSO for equitable disallowance of its claim, (5) against SPSO for equitable subordination of its claim, and (6) against SPSO, DISH, EchoStar, and Ergen for tortious interference with the Credit Agreement. A seven-day bench trial in the adversary proceeding was held in January 2014.
In her June 10, 2014 decision, Judge Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York held that SPSO’s acquisition of LightSquared’s debt violated the spirit of the transfer restrictions in LightSquared’s Credit Agreement, and constituted a breach of the implied covenant of good faith and fair dealing. The Court found that Ergen’s conduct established that he was acting on behalf of DISH when he purchased LightSquared’s debt through SPSO. As a result, the Court equitably subordinated SPSO’s claim in an amount to be determined at a later date.
The Milbank team representing LightSquared consisted of partners Matthew Barr (Financial Restructuring, NY), Alan Stone and Michael Hirschfeld, (Litigation, NY); David Cohen and Andrew LeBlanc (Litigation and Financial Restructuring, DC); Roland Hlawtay (Corporate, NY); James Ball (Global Securities, NY); James Pascale (Transportation & Space Finance, NY); Russ Kestenbaum (Tax, NY); special counsel Aaron Renenger (Litigation, DC); Drew Batkin (Tax, NY); and associates Karen Gartenberg, Steven Szanzer, Andrew Young, Jonathan Ostrzega and David Schiff (Financial Restructuring, NY); Aluyah Imoisili, Bianca Forde, Taryn Gallup and Daniel Kaplan (Litigation, NY).
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