By Nick Brown
NEW YORK Thu Oct 30, 2014 7:38pm EDT
NEW YORK Oct 30 (Reuters) - Hedge fund manager Phil Falcone's efforts to hold onto a piece of his LightSquared wireless venture took a hit on Thursday when a bankruptcy judge denied a request by his Harbinger Capital Partners to wipe out a lender group's $1.7 billion claim against a unit of the company.
Judge Shelley Chapman of U.S. Bankruptcy Court in Manhattan criticized the request as an attempt by Harbinger, which controls LightSquared, "to leapfrog up the capital structure over secured creditors."
LightSquared has been in Chapter 11 bankruptcy since 2012, when regulators barred it from using its wireless spectrum due to fears of interference with GPS systems. It has proposed a restructuring plan that would transfer control of the company to the lenders.
Harbinger, hoping to salvage some equity, submitted a competing plan in August, which would split LightSquared's so-called "Inc" and "LP" units and allow Harbinger to retain a stake in the Inc assets.
But Harbinger's plan was contingent on Chapman ruling that the lenders did not have any claim against the Inc assets.
Chapman's ruling would appear to sink Harbinger's plan, but its lawyer said it is not giving up. "We're considering amending the plan to comply with the court's decision," attorney David Friedman told Reuters.
The ruling is the latest wrinkle in what has become one of the messiest and most contentious bankruptcies in recent memory.
The case included a weeks-long trial earlier this year between LightSquared and Dish Network Corp Chairman Charles Ergen, LightSquared's single largest creditor. LightSquared accused Ergen of using underhanded tactics to infiltrate its capital structure and gain control of the company on Dish's behalf.
The sides ultimately reached a consensual restructuring under which Ergen would become LightSquared's primary lender after bankruptcy, but that deal fell apart over the summer amid objections by Harbinger.
With stakeholders divided on how to restructure, the company's future is uncertain, and a frustrated Judge Chapman has threatened to liquidate the company if sides don't make progress on a consensual deal. Months of mediation sessions with a separate bankruptcy judge have yet to yield a solution that has stuck.
Under LightSquared's proposed restructuring, which is still on the table but opposed by Harbinger, Ergen's $1 billion in loan debt would be repaid in the form of new debt and nonvoting shares. (Reporting by Nick Brown; Editing by Cynthia Osterman)
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