Harbinger Trial Against Dish Network to Continue After Dish Pulls Bid for LightSquared

Ergen “believed his investments were private matters that were of no concern to Dish or EchoStar as neither company was permitted to buy LightSquared loan debt,” an attorney for Ergen and SoundPoint Capital Management said in a defendants’ trial brief this week. “In fact, Mr. Ergen did not disclose his trades to the Dish and EchoStar boards until May 2013, after the final trade had been initiated.” LightSquared can’t prove that Ergen and defendants engaged in inequitable conduct in connection with their acquisition of the loan debt, “or that any of the Ergen defendants’ conduct harmed LightSquared stakeholders,” it said. Dish attorneys and representatives of Harbinger didn’t return calls for comment.

With Dish’s bid off the table for now, it’s still hard to say whether LightSquared’s preferred standalone plan from Fortress Investment Group, Harbinger, JPMorgan Chase and Melody Capital Partners is in the clear, some analysts said. “My sense is that it’s going to be a positive development for the LightSquared backers,” said Jeff Silva, a Medley Global Advisors analyst. The Dish pursuit was “like an existential threat” to LightSquared, he said: “I think there’s less of an existential threat, but there are still a lot of moving parts and hoops they're [LightSquared] going to have to jump through before they can emerge from bankruptcy."

The withdrawal “completely undercuts LightSquared and Harbinger’s arguments that Ergen always knew Dish would come in and buy out his debt,” Tim Farrar, independent MSS analyst, said in a blog post (http://bit.ly/1bWdRKi). If the move is a strategic maneuver to undercut LightSquared’s lawsuit against Ergen, “then it would be logical to expect Dish would ultimately give in when the debtholders attempt to force specific performance of the Asset Purchase Agreement,” he said, referring to a similar complaint filed by LightSquared against Ergen (CD Aug 26 p11). If there is a near-term deal to move forward with a wireless partner, like Sprint, and an AWS-4 buildout, “then the rebanding and delay associated with a Dish acquisition of LightSquared would probably cause more problems than it solves,” he said.

Just because Dish pulled its support for the lenders’ plan, it doesn’t change the fact that Ergen still owns debt in LightSquared, said Walter Piecyk, BTIG analyst. “There is possibly an opportunity for Dish to re-emerge in the process.” The standalone deal relies on some financial commitments that investment banks are attempting to obtain by a Jan. 17 deadline, Piecyk said. “It might make sense for Ergen to wait to see how that financing goes before making his next move."

"By Dish acting in such a manner that’s potentially adversary for Ergen’s investment, it somewhat shows a lack of coordination between the two parties,” said Felix Wai, a New Street Research analyst. However, it works to Ergen’s advantage to show they weren’t working together, he said. “But in the back of his mind, Ergen has to know that lenders would want him to follow through on the deal."

The standalone plan, which consists of at least $1.25 billion in new equity and $2.75 billion in loans, is dependent on FCC approval of LightSquared’s proposed license modification (CD Dec 31 p1). It’s possible that the Dish withdrawal has bought some time for LightSquared and the FCC for reconsidering the status of its authorization, Silva said.