Docket: Case No. 12-12080 (SCC) Jointly Administered
Court: United States Bankruptcy Court, S.D. New York; July 11, 2014; Us Bankruptcy; United States Bankruptcy Court
The court denies confirmation of the Debtors’ Third Amended Joint Plan under Chapter 11 of the Bankruptcy Code. The plan, which received support from all significant parties except SPSO—controlled by Charles Ergen—faces opposition primarily due to SPSO’s claim of approximately $844 million in secured debt. The Debtors seek to disallow or subordinate this claim and to designate SPSO’s vote due to alleged misconduct associated with Mr. Ergen and related entities.
The court finds that the separate classification of the SPSO claim complies with Section 1122 of the Bankruptcy Code, but SPSO’s rejection vote cannot be disregarded. Consequently, the cramdown requirements of Section 1129(b) apply, revealing that the plan is neither fair and equitable nor does it avoid unfair discrimination against Class 7B, which includes the SPSO claim. Various valuations (Moelis, GLC, Ergen, and PWP) are discussed, highlighting disparities in treatment between SPSO and other creditors.
The decision also notes ongoing contentious litigation between the parties, with motions filed even after the evidentiary record was intended to be closed. Ultimately, the court’s decision addresses the confirmation of the plan and the related motions that emerged during the confirmation process.
LightSquared LP and its affiliated entities (collectively referred to as "LightSquared" or the "Debtors") provide wholesale mobile satellite communications and broadband services across North America. They hold several satellites and FCC-issued licenses for mobile satellite service spectrum, catering to military, first responders, and the general public. On May 14, 2012, LightSquared filed for Chapter 11 bankruptcy, allowing them to continue operating as debtors in possession under sections 1107(a) and 1108 of the Bankruptcy Code, with no official committee, trustee, or examiner appointed.
On August 6, 2013, Harbinger Capital Partners and others initiated an adversary proceeding against various parties, including Charles Ergen and DISH Network, alleging multiple claims such as fraud and tortious interference, seeking damages and other relief. After the court dismissed some motions related to Harbinger’s complaint, LightSquared intervened in the case. A trial occurred from January 9 to 17, 2014, with a bench decision rendered on May 8, 2014, later replaced by the Adversary Proceeding Decision issued on June 10, 2014.
Additionally, LightSquared filed a General Disclosure Statement on August 29, 2013, followed by an amended version on October 7, 2013. The court approved this disclosure statement on October 10, 2013, along with related procedures. On December 31, 2013, LightSquared filed a Revised Second Amended Joint Plan, and on February 14, 2014, they submitted a Plan along with a Specific Disclosure Statement for the Third Amended Joint Plan.
On February 24, 2014, the Court issued the Revised Disclosure Statement Order, approving LightSquared's Third Amended Specific Disclosure Statement and allowing a streamlined solicitation for votes on the Plan. Key deadlines established include a voting deadline of March 3, 2014, and an objection deadline of March 11, 2014, extended for SPSO until March 15, 2014. SPSO's objection to the Specific Disclosure Statement was overruled.
The Third Amended Plan classifies claims and equity interests into sixteen distinct classes, including various priority and secured claims, equity interests, and intercompany claims. Notably, Prepetition LP Facility Claims are divided into two classes: Class 7A for Non-SPSO claims, which will receive cash equal to their allowed claims, and Class 7B for SPSO claims, which will receive an SPSO Note. This note has a seven-year maturity, bears interest at LIBOR plus twelve percent, and may be secured with junior liens if determined by the Court.
The Plan requires nearly $1 billion less in financing compared to the prior plan and includes provisions for first lien exit financing of at least $1 billion, issuance of new debt and equity, payment of allowed claims, assumption of certain liabilities, and a $1.65 billion New DIP Facility for operational funding and creditor distributions. This facility will convert portions into second lien exit financing, a Reorganized LightSquared Inc. Loan, and new equity, with adjustments outlined in the Plan. Additionally, the Plan preserves LightSquared's litigation claims.
The Plan has received affirmative support from several entities, including Fortress Investment Group (and its affiliates), Melody Capital Advisors (and its funds), Harbinger, JP Morgan Chase and its affiliates, U.S. Bank National Association, MAST Capital Management, and the Ad Hoc Secured Group of Prepetition LightSquared LP Lenders. Voting results indicate that Classes 6, 7A, 8, 9, 10, 11A, 11B, and 12 accepted the Plan with 100% approval, while Class 7B (Prepetition LP Facility SPSO Claims) rejected it. Holders of Claims or Equity Interests in Classes 1, 2, 3, 4, 5, 13, and 14 are deemed unimpaired and accepted the Plan under section 1126(f) of the Bankruptcy Code.
Numerous motions related to the confirmation of the Plan are pending, including LightSquared's Motion for Entry of Order Designating Vote of SP Special Opportunities, LLC, which seeks to designate SPSO's vote under section 1126(e). Other motions include the New DIP Motion for postpetition financing and cash collateral use, the KEIP Supplement to modify the Key Employee Incentive Plan, and motions to strike expert testimony from Douglas Hyslop, J. Soren Reynertson, Robert McDowell, and Mark Hootnick. SPSO has filed objections to the Plan and various related motions.
On March 18, 2014, LightSquared filed a memorandum supporting the confirmation of its Third Amended Joint Plan, along with a response to objections and declarations from Matthew S. Barr and Douglas Smith.
Statements and pleadings supporting the Plan were submitted by several parties, including Fortress, Melody, Harbinger, JPMorgan, U.S. Bank and MAST, the Ad Hoc Secured Group, and the Special Committee. The Confirmation Hearing began on March 19, 2014, lasting eight days, during which the Court heard live testimonies from various witnesses, including members of the Special Committee, expert witnesses on FCC matters and valuation issues, and representatives from involved financial advisory firms. Testimony from the Debtors’ Chief Financial Officer was presented via video. Numerous documentary exhibits were admitted, along with detailed proposed findings and post-trial memoranda from the parties.
Closing arguments regarding the Plan, Vote Designation Motion, and New DIP Motion took place on May 5 and 6, 2014. The Plan’s valuation is based on LightSquared's ownership and use of four spectrum blocks in the L-Band, including specific frequency ranges for downlinks and uplinks. LightSquared’s License Modification Application, filed with the FCC on September 28, 2012, seeks to modify its licenses to allow shared use of the NOAA Spectrum and to enable terrestrial operations by pairing the New Downlink with existing uplink channels, while also relinquishing rights to a 10 MHz downlink spectrum for terrestrial use.
LightSquared submitted a License Modification Application and petitioned the FCC on November 2, 2012, to amend the U.S. Table of Frequency Allocations, seeking to secure 30 MHz of spectrum for non-federal terrestrial mobile use of the NOAA Spectrum. LightSquared argues this spectrum is vital for its business plan, despite SPSO's concerns that the NOAA Spectrum may be auctioned instead of assigned to LightSquared. LightSquared acknowledges the uncertainty surrounding the assignment of the NOAA Spectrum but contends this does not negate the feasibility of its plan. Additionally, LightSquared has requested the FCC to investigate the future use of its Lower Downlink for terrestrial service, asserting it will gain authorization within three to seven years.
Robert McDowell, a former FCC Commissioner, provided expert testimony during the Confirmation Hearing, expressing confidence that the FCC would approve LightSquared's License Modification Application by December 31, 2015, and that the NOAA Spectrum would not be auctioned. He believes the FCC will also permit the use of the Lower Downlink within the projected seven-year timeline. Although McDowell has not engaged with the FCC since leaving the agency in May 2013 due to regulatory restrictions, he based his opinions on extensive experience, asserting a high likelihood of favorable FCC actions regarding LightSquared’s applications.
Mr. McDowell acknowledged that the FCC could take years to initiate a rule-making proceeding regarding the NOAA Spectrum, and he noted the FCC's lack of assurances about its decisions or timing. Despite this, he provided opinions on the timing of LightSquared’s regulatory approval process, having discounted several potential issues: (i) GPS interference concerns raised by the GPS community, (ii) handset interference issues regarding LightSquared’s uplink spectrum, and (iii) the possibility of the FCC opting to auction the NOAA Spectrum instead of swapping it for LightSquared’s downlink spectrum. He cited past instances where the FCC approved spectrum swaps without auctions, concluding that LightSquared's license modification would likely be granted by the end of 2015. Key factors in his conclusion included ample time to resolve issues, precedents demonstrating the FCC's ability to address complex matters quickly, and the imminent resolution of LightSquared's bankruptcy, which he believed would prompt expedited action from the FCC. However, he did not provide evidence supporting his timeline, could not estimate when rule-making proceedings might begin, and his opinion was characterized as an educated guess without significant weight.
Christopher Rogers, a member of the Special Committee of LightSquared's boards of directors, testified regarding his involvement in the plan formulation and negotiation process amidst allegations that the process was influenced by Harbinger and associates. He reported spending approximately 500 hours on the plan but did not elaborate on the specifics of the Special Committee's negotiations regarding the plan's economics.
Mr. Rogers provided testimony that was credible but lacked depth, indicating that he and the Special Committee engaged in discussions about the plan process since their appointment. However, he offered little insight into how the economic terms of the Plan, predominantly influenced by Harbinger and Mr. Falcone, were developed or the Special Committee's role in negotiations. Due to the Special Committee's claim of a broad common interest privilege, no relevant communications or documents were available for review.
Mr. Douglas Smith, the Debtors’ CEO, testified extensively on various topics, including the plan process and LightSquared's management involvement. He expressed confidence in achieving FCC approval for the License Modification Application by December 31, 2015, citing progress on several fronts, including comment cycles on spectrum usage and a petition for rulemaking filed with the FCC. He also addressed technical concerns raised by LBAC, asserting that these issues were manageable.
Mr. Marc Montagner, the CFO, provided deposition testimony about his role in the plan process, which he characterized as mostly passive, and shared insights on financial forecasting and FCC matters.
Mr. Steven Zelin, a financial advisor for the Ad Hoc Secured Group, detailed the various plan alternatives he evaluated and his involvement in negotiations that led to the Plan Support Agreement related to the DISH/LBAC Bid.
Mr. Zelin expressed concerns about the "strange" conduct and comments from DISH, SPSO, and their counsel regarding a "technical issue" and the DISH/LBAC Bid before and after the December 11, 2013 LightSquared auction. He speculated on LBAC's decision to terminate its bid, but his testimony lacked substantive impact on the central issues of the case.
Mr. Charles Ergen, a witness for the Ad Hoc Secured Group, provided extensive testimony over a full day, focusing on several key areas: (i) a valuation analysis of LightSquared's spectrum assets he presented to the DISH Board in July 2013, estimating their value between $5.17 billion and $8.99 billion; (ii) the fairness opinion and valuation by Perella Weinberg Partners for DISH; (iii) his understanding of the "technical issue" affecting the spectrum's value; (iv) his involvement in the LightSquared auction, including DISH's readiness to increase its bid and the decision to terminate the DISH/LBAC Bid; and (v) his perspective on competition between DISH and LightSquared. Although knowledgeable about the telecommunications industry, Ergen's testimony became less clear when discussing the termination of the DISH/LBAC Bid, suggesting a lack of credible insight regarding DISH's actions related to the "technical issue."
Mr. Omar Jaffrey, a principal of Melody, testified that he contacted Mr. Falcone in summer 2013 to explore investment opportunities in LightSquared. Melody was retained by Harbinger to provide a $550 million debtor-in-possession financing commitment for a reorganization plan, which included an eight percent annual commitment fee, a $4 million upfront fee, and a significant break-up fee if LightSquared was sold. Jaffrey believed this financial commitment was still outstanding at the time of his testimony on March 28, 2014.
In December 2013, Melody committed $550 million to the Debtors’ Second Amended Plan, which included $285 million in debtor-in-possession financing. Internal communications indicated that Melody believed there was a 90% likelihood that Mr. Ergen would acquire LightSquared from bankruptcy, rendering the financing unnecessary. In January 2014, the Second Amended Plan was discarded, leading to discussions for a Third Amended Plan aimed at facilitating a quicker exit from bankruptcy and eliminating FCC conditionality.
Testimony from Mr. Jaffrey highlighted the progression of the Plan's economic terms, revealing coordination among him, Mr. Falcone, and Drew McKnight of Fortress regarding its structure, potential inclusion of JPMorgan, and the SPSO Claim. The Melody proposal was predicated on subordinating the SPSO Claim, aligning with Mr. Falcone's perspective. Mr. Jaffrey articulated that the objective was to create a "win-win" scenario for all parties except SPSO, emphasizing Melody’s aim for profit through fees, interest from a proposed second lien investment, and equity growth linked to LightSquared's success.
Mr. Philip Falcone, the final witness at the Confirmation Hearing, provided insights into his significant role in shaping the Plan, discussing his interactions with Mr. Jaffrey and Mr. McKnight. He expressed intentions to subordinate Mr. Ergen’s claim, protect the interests of Harbinger, Fortress, and JPMorgan, and maintained optimism about FCC approval, dismissing the technical issue raised by DISH as inconsequential. He also outlined Harbinger's potential to inject an additional $150 million, increasing its post-confirmation stake in the reorganized company to 36%, with part of this investment positioned ahead of the SPSO Note.
Mr. Falcone expressed dissatisfaction with the outcomes related to the Plan, indicating that neither he nor anyone from Harbinger holds a position on the reorganized company’s board, and he is relinquishing his legal claims against the GPS industry. He has been criticized for engaging in unprofessional and possibly hostile commentary regarding various individuals involved in the cases.
Mr. Mark Hootnick from Moelis provided testimony supporting the valuation underlying the Plan, based on extensive research over nearly two years. His valuation relied on experience with similar assets and involved significant discussions with LightSquared's management concerning regulatory issues, the business plan, and liquidity forecasts.
Moelis’ valuation report, which was submitted to the Court, included a comprehensive analysis of LightSquared's asset value and was predicated on assumptions regarding the FCC's approval for a 30MHz spectrum license by the end of 2015, while not considering alleged technical issues raised by SPSO. Hootnick acknowledged that the FCC’s statements do not guarantee timing for these approvals, and his valuation is heavily reliant on Mr. McDowell’s insights regarding these timelines.
Moelis employed a recognized valuation method, utilizing market multiples based on price per MHz/POP, to assess LightSquared’s spectrum value, highlighting its favorable characteristics for coverage and penetration. The report compared LightSquared’s spectrum to other comparable transactions to derive its valuation.
Moelis utilized a market comp range of sixty to ninety cents per MHz/POP to value LightSquared’s spectrum assets, assuming the License Modification Application would be granted by projected dates. This valuation method led to an estimated worth of LightSquared's Uplinks and New Downlink between $4.8 billion and $7.2 billion, with a midpoint of $6 billion. For the Lower Downlink spectrum, Moelis applied similar principles, arriving at a value of $811 million to $1.22 billion, with a midpoint of $1.03 billion. After assessing the entire spectrum and satellite portfolio, Moelis estimated the total enterprise value of LightSquared's assets to be between $6.2 billion and $9.1 billion, averaging $7.7 billion. After deducting specific payment obligations, LightSquared's adjusted total value was approximately $4.47 billion to $7.4 billion, with a midpoint of $5.96 billion. The Moelis Valuation Report aligns with prior valuations by the Ergen Parties, which were conducted without assuming favorable FCC modifications, and all three parties—Moelis, Mr. Ergen, and PWP—used similar valuation methodologies and assumptions regarding the L-band spectrum’s unique characteristics.
Mr. Ergen's valuation employs a higher MHz/POP range than Moelis, specifically sixty-five to ninety-five cents, compared to Moelis's sixty to ninety cents, and it only accounts for a fraction of LightSquared’s assets. Notably, it includes only 20 megahertz of spectrum in its primary asset value. The PWP Valuation aligns more closely with Moelis, reflecting a MHz/POP range of fifty to ninety cents. Both the Ergen and PWP valuations indicate a greater value for LightSquared’s satellite system than Moelis's estimate. The Ergen Valuation posits an implied primary value for LightSquared LP’s spectrum assets at up to $5.213 billion, with a midpoint of $4.277 billion. Conversely, the PWP Valuation estimates a standalone value between $2.3 billion and $5.4 billion.
All valuations assume that LightSquared will relinquish its Upper Downlink in a future spectrum swap, leading Moelis to assign no value to it. Mr. Ergen values the Upper and Lower Down-links together at $312 million to $1.56 billion, with a midpoint of $936 million.
Expert testimony was provided by Mr. J. Soren Reynertson of GLC, who was compensated $1.25 million and given three weeks to form his opinions. The Debtors challenged his qualifications under the Daubert standard, but the Court overruled this challenge, citing lack of prior notice and the merits of the case. Reynertson stated he relied entirely on Mr. Hyslop’s opinions concerning the spectrum available for LightSquared, despite not being an FCC expert himself. He valued LightSquared’s assets based on GLC's assessment of risks related to obtaining FCC approval for spectrum use, taking into account interference issues and discussions with Hyslop.
Mr. Reynertson’s analysis in the GLC Valuation Report modified Mr. Hootnick’s valuation methodology by altering several inputs. Key changes included reducing the available spectrum by 10 MHz due to the application of two 5 MHz guard bands, citing interference concerns, and discounting the price per MHz/POP based on the assumption that LightSquared’s License Modification Application would not be approved. The report posits that once technical issues are resolved, LightSquared will have between 15-30 MHz of usable spectrum, despite the reduction linked to alleged interference, which required designating 50% of LightSquared’s uplinks as unusable guard bands.
Reynertson’s reliance on Mr. Hyslop’s opinion regarding guard bands is called into question, as Hyslop did not consider guard bands until after Reynertson completed his report and deposition. Reynertson acknowledged that if his guard band assumption was incorrect, it would invalidate part of his valuation. Notably, Reynertson lacks prior experience in valuing satellites or spectrum and admitted he did not review relevant valuation analyses prepared by Mr. Ergen or PWP prior to forming his opinions. The GLC Valuation Report is criticized for its inconsistencies and flaws, leading to its dismissal as lacking significant weight. Additionally, since parts of Hyslop’s expert opinion will be stricken from the record, the portions of the GLC Valuation Report relying on Hyslop’s testimony will similarly carry little weight. Lastly, Mr. Hyslop was engaged by SPSO to provide expert testimony on a “technical issue.”
Mr. Hyslop was retained on February 28, 2014, formed his opinions by March 3, 2014, and was deposed on March 8, 2014. The Debtors moved to strike part of his testimony, asserting it contained a new opinion on “guard bands” presented for the first time at the Confirmation Hearing. The parties are in dispute over whether this opinion should be deemed “new” and whether the Debtors' tactics in eliciting the opinion reflect gamesmanship. The Court granted the Debtors' Motion to Strike regarding Mr. Hyslop, removing the contested portions of his testimony from the record. The remaining testimony did not provide credible support for SPSO’s position regarding the “technical issue.”
Mr. John Jacob Rasweiler V served as the Debtors’ rebuttal expert on the “technical issue,” providing testimony that undermined the credibility of Mr. Hyslop’s conclusions. Employed by Sublime Wireless, Mr. Rasweiler has extensive experience in radio frequency engineering and network design. He testified that the alleged “technical issue” is unlikely to exist and highlighted existing technology that could mitigate it, as well as advancements that, while not commercially available, could address the issue.
Regarding the Plan’s confirmation, the Court found that the separate classification of the Prepetition LP Facility SPSO Claim (Class 7B) from the Prepetition LP Facility Non-SPSO Claims (Class 7A) complies with Section 1122 of the Bankruptcy Code. Although the claims are substantially similar, the Court ruled that separate classification is permissible under the Bankruptcy Code, provided there is a reasonable justification, such as the SPSO holder being a competitor with non-creditor interests. Courts have affirmed that placing similar claims in separate classes is allowable under specific circumstances.
Separate classification of claims in bankruptcy proceedings requires a rational justification and must not violate due process or fair play principles. Courts have recognized that a "good business reason" can support such classification, especially when dealing with competitors of the debtor. For instance, a competitor’s non-creditor interests can justify separate classification, as seen in cases like In re Premiere Networks Services, where the creditor-competitor had a distinct stake in the reorganized entity's future. The ruling in In re 500 Fifth Ave. Associates highlighted that merely isolating a secured creditor's deficiency claim from other unsecured claims was unjustified, as it aimed to manipulate the impaired accepting class for plan confirmation. The court emphasized that the motivations behind a creditor's classification should not drive the decision; instead, the legal nature of claims should be the focus. The ongoing debate between parties reflects differing interpretations of whether motives can affect classification propriety, particularly regarding competitor creditors. Ultimately, the court finds no necessity to explore ulterior motives in the current context.
SPSO's stake in LightSquared is significant and intertwined with DISH's interests, particularly due to Mr. Ergen's dual role as the beneficial owner of SPSO and the controlling shareholder of DISH. The court emphasizes that claims involve more than just financial considerations; they encompass a set of rights and remedies that can be influenced by the claimant's identity. In this case, both DISH and LightSquared are competitors in acquiring spectrum assets, and Mr. Ergen's strategic interests may conflict with those of LightSquared as a debtor. His fiduciary duties to DISH could compel him to act against LightSquared's best interests, particularly as he seeks to maintain acquisition options for DISH.
SPSO's actions have aligned with DISH’s strategic objectives rather than acting as a typical creditor. Notably, SPSO delayed trades of LP Debt, creating uncertainty that hindered LightSquared's reorganization efforts. Mr. Ergen suggested that SPSO's blocking position could facilitate DISH's acquisition of LightSquared's spectrum. When DISH was slow to respond, he pursued a personal bid for LightSquared's assets, which he later sold to DISH for a nominal amount, further indicating a prioritization of DISH's interests over those of LightSquared’s other creditors.
SPSO and the Ergen Parties established a binding plan with the Ad Hoc Secured Group to implement the DISH/LBAC Bid, effectively preventing the group from negotiating alternative plans with LightSquared and its stakeholders. In January 2014, they withdrew this bid. The Ad Hoc Secured Group sought to enforce the DISH/LBAC Bid through a Motion to Enforce, which would have significantly benefited SPSO, but SPSO opposed this motion and allowed its attorneys to work against it on behalf of DISH and LBAC.
Additionally, SPSO and the Ergen Parties engaged with FCC representatives regarding DISH’s potential acquisition and use of LightSquared’s spectrum. Mr. Ergen met with Inmarsat executives to discuss LightSquared amid ongoing negotiations regarding a modification of their cooperation agreement, which is a prerequisite for the Plan. SPSO and the Ergen Parties raised concerns about a supposed "technical issue" related to LightSquared, insisting that all potential auction bidders be informed. Although vendors like Huawei and Avago indicated the issue would not hinder the uplinks, an email from Huawei suggested that Mr. Ergen intended to leverage this issue to negotiate a lower purchase price for the spectrum.
SPSO contended that the NOAA Spectrum should be auctioned, a position inconsistent with the typical interests of a non-competitive creditor. SPSO claimed it is not a competitor of the Debtors because its affiliates, DISH and EchoStar, operate in pay television, while the Debtors hold spectrum without the authority to utilize it commercially. However, this claim contradicts Mr. Ergen's testimony, which reveals his ambitions for DISH to expand into the terrestrial wireless sector and compete with telecommunications companies.
DISH Network, under the leadership of Mr. Ergen, is actively engaged in acquiring spectrum, which is considered a limited commodity, evidenced by its efforts to take over DBSD and TerreStar and its failed transactions with other companies like Clearwire Corp. and Sprint Corp. DISH's participation in the H-block auction further illustrates its competitive stance in the spectrum market. The court recognizes DISH as a competitor of LightSquared, highlighted by DISH's classification as a “Disqualified Company” in the Pre-petition LP Credit Agreement, which restricted its ability to purchase LP Debt. Testimonies from Mr. Ergen and valuation expert Mr. Reynertson affirm that DISH and LightSquared are competitors, and this competitive relationship is also applicable to SPSO, a company affiliated with DISH, which shares common control with Mr. Ergen. The court rejects SPSO's attempts to distance itself from this competitor status, emphasizing the necessity for separate classification of the Prepetition LP Facility SPSO Claim as it aligns with section 1122 of the Bankruptcy Code. While the separate classification is permissible, it is not mandated, and the possibility exists for a reorganization plan that groups all Prepetition LP Facility Claims together, provided it meets the requirements of section 1123(a)(4). The court also notes that any portion of the SPSO Claim that is equitably subordinated cannot be included in such a class without the consent of all affected parties. Furthermore, under section 1126(e) of the Bankruptcy Code, the court retains the authority to designate the vote of any entity that did not act in good faith regarding the acceptance or rejection of the plan, referencing the precedent set by the Second Circuit in In re DBSD N. Am. Inc.
The court emphasized that the Bankruptcy Code does not define "bad faith" voting under section 1126(e), leaving it to bankruptcy courts to determine when a party's actions cross that threshold. Courts should apply section 1126(e) sparingly, treating it as an exception rather than a rule. Simply purchasing claims to influence a plan's approval or rejection does not automatically constitute bad faith; selfish motives alone do not disqualify a creditor's good faith, as the Code permits self-interested actions. Section 1126(e) applies when a party's actions extend beyond self-interest to gain an undeserved benefit. Votes from parties purchasing claims in a competitor’s bankruptcy are particularly scrutinized.
The Debtors contend that Mr. Ergen's actions to gain control over the LP Debtors' assets through a strategic claim purchase exemplify the kind of behavior the Second Circuit aimed to deter in previous cases. They argue that both SPSO and the Ergen Parties have utilized tactics similar to those seen in past cases to manipulate the bankruptcy process for non-creditor benefits, accusing them of stealthy maneuvers. They assert that Mr. Ergen’s motivations in this case contradict his status as a creditor, as he opposed a near-full cash recovery for creditors to benefit DISH's interests. The Debtors further maintain that the misconduct of other Ergen Parties should be attributed to SPSO in the vote designation context to uphold the protections intended by section 1126(e).
Multiple entities were formed to engage in disruptive conduct, similar to the actions of the Ergen Parties. However, the Court found that the facts regarding vote designation do not support the Debtors' argument against SPSO's vote to reject the Third Amended Plan. The Court noted that the plan is unconfirmable for several reasons, particularly due to its unfavorable treatment of the SPSO Claim. When a creditor, such as SPSO, votes to reject a plan for a mix of legitimate reasons, their vote cannot be designated. SPSO's rejection was based on the plan's stripping of its first lien security interest and offering consideration akin to equity interests, which was unacceptable. The Court contrasted this situation with DBSD, where the creditor bought claims after a plan was proposed to gain strategic advantages. Unlike DBSD, SPSO acquired its significant claims before any plans were filed and at a discount, suggesting it is a preexisting creditor. Consequently, the Court refused to extend DBSD’s principles to votes by creditors holding claims acquired prior to the proposal of any plan, especially when the rejection is driven by valid, self-interested reasons.
Casting a vote on a plan to gain more than one deserves may indicate bad faith, but evidence of mere selfishness or aggressive recovery attempts is insufficient to prove it. Courts have ruled that creditors must demonstrate intent to harm other creditors at the time of voting. In *In re GSC, Inc.*, the court required proof that a creditor's primary motive in rejecting a plan was to benefit at the expense of others, allowing for valid business reasons for voting against a plan. Similar rulings in *In re Figter Ltd.* and *In re Dune Deck Owners Corp.* emphasized the need to distinguish between creditor-related and non-creditor-related motives. In this case, despite SPSO's alleged ulterior motives and questionable conduct in acquiring its claim, it rejected a plan that offered poor treatment, which any similarly-situated creditor would likely oppose. The Debtors incorrectly suggest that inequitable conduct justifies designating a creditor's vote, conflating sections 1126(e) and 510(c). The court clarifies that vote designation must be specific to the voting conduct regarding a particular plan. If SPSO had voted against a plan offering full cash payment or favorable treatment accepted by other creditors, its good faith would be highly questionable.
SPSO's vote against the proposed plan cannot be designated due to its non-creditor interests, which would otherwise undermine the protections of section 1129(b) of the Bankruptcy Code. As a result, the cramdown requirements of section 1129(b) apply to Class 7B. Under section 1129(b)(1), a plan can be confirmed over a dissenting class if it is "fair and equitable" and does not discriminate unfairly. The proposed plan fails to meet these criteria for Class 7B.
To be fair and equitable to secured claims, the plan must comply with one of three conditions outlined in section 1129(b)(2)(A): (i) secured creditors retain their liens and receive deferred cash payments equal to their secured interests, (ii) the property subject to liens is sold free and clear with liens attaching to the proceeds, or (iii) creditors receive the “indubitable equivalent” of their claims. The plan does not satisfy any of these requirements regarding Class 7B. It does not comply with subsection (A)(i) because it replaces SPSO’s first lien with a third lien, failing to subordinate the SPSO Claim entirely. Furthermore, it does not meet the "indubitable equivalent" standard under subsection (A)(iii), as it lacks provisions ensuring the creditor's principal protection and present value equivalent of the claim. The court references the DBSD case, indicating that to satisfy the indubitable equivalent requirement, a plan must ensure the value of collateral relative to the secured claim and provide an appropriate interest rate.
The "indubitable equivalent" standard requires that replacement recoveries must clearly equal the value of existing security interests, ensuring that a lender's secured interest in collateral is unquestionable. In the case at hand, the proposed SPSO Note, which accrues PIK interest at LIBOR plus twelve percent, has a seven-year maturity, and is secured by a third-priority lien on all assets of the New LightSquared Entities, is contested by SPSO. SPSO argues that the note does not provide an indubitable equivalent for several reasons: it is deemed speculative as of the Effective Date, it does not account for postpetition interest, it offers inferior economic terms compared to the Prepetition LP Facility, and it has more stringent transfer restrictions and reduced covenant protections.
The Debtors contend that the SPSO Note offers the indubitable equivalent by ensuring full payment and asserting that the court should compare the value of the collateral against the SPSO Claim and analyze the interest rate and maturity of the note. They reference a collateral valuation report estimating a midpoint value of $7.7 billion, asserting that the SPSO Claim's principal is adequately protected. Additionally, the Debtors claim the Plan improves SPSO's collateral by providing a third lien on existing collateral and a lien on new collateral, including substantial assets of NewCo, which enhances the collateral value significantly. The Ad Hoc Secured Group supports this by stating that the additional collateral increases SPSO's package by hundreds of millions of dollars.
On December 31, 2013, SPSO proposed to pay $348 million for the Inc. Debtors’ assets, while Moelis indicated that the assets might be worth at least a few hundred million, with some believing they could be valued as high as a billion dollars. Moelis has not conducted a separate valuation of the Inc. assets. SPSO contests the Debtors' valuation and projections, asserting that the third lien it would receive under the SPSO Note does not ensure indubitable equivalence, given its claim to a first lien. The SPSO's objection to the Debtors’ Third Amended Joint Plan references case law suggesting that subordinated liens can sometimes satisfy indubitable equivalence, but such cases are rare and typically involve oversecured creditors. The Debtors acknowledge that their valuation of the SPSO Note relies on the anticipated approval of FCC applications related to LightSquared's spectrum assets, making the valuation of these assets critical to the indubitable equivalence argument. There is significant disagreement between the Debtors and SPSO regarding asset valuation, reflecting a broader divide among the parties involved.
Mr. Ergen prepared a valuation of the Debtors’ spectrum assets, which was compared to a valuation by PWP for the DISH Special Committee related to the terminated DISH/LBAC Bid. Notably, the assumptions for each valuation varied significantly, particularly regarding price per MHz/POP, the effect of FCC approval on the License Modification Application, proposed spectrum usage, and potential technical issues.
In evaluating the Moelis Valuation, the Court noted that the value of LightSquared’s assets is crucial for assessing the Plan's feasibility and the treatment of the SPSO Claim. Under Mr. Hootnick’s supervision, Moelis estimated a value range for LightSquared's assets between $6.2 billion and $9.1 billion. Their methodology, which is widely accepted in the industry, aligns closely with that of SPSO’s expert and other valuations, utilizing market comparables and spectrum characteristics. However, the Court found the valuation overly reliant on questionable assumptions regarding FCC approval timelines, leading to insufficient weight being given to the Moelis Valuation in supporting the Plan.
The GLC Valuation Report presented by SPSO faced significant criticisms. Mr. Reynertson, who relied on Mr. Hyslop's opinions about the inclusion of LightSquared’s spectrum in his analysis, raised concerns about his credibility due to reliance on information revealed during the Confirmation Hearing. His methodology appeared inconsistent, and despite being compensated $1.25 million, his analysis was deemed superficial and uninformed by other valuations, resulting in the Court giving it little weight.
Mr. Ergen prepared a six-page presentation, the Ergen Valuation, dated July 3, 2013, detailing the value of LightSquared's assets to DISH, focusing on two components: (1) the value of 20 MHz of LightSquared spectrum and satellites, estimated between $3.3 billion and $5.2 billion, and (2) the incremental value to DISH from integrating this spectrum with its existing AWS-4 spectrum, valued between $5.1 billion and $8.9 billion. The Ergen Valuation indicates a higher MHz/POP range than the Moelis Valuation (0.65 to $0.95 compared to $0.60 to $0.90). SPSO challenged the Ergen Valuation, suggesting it failed to account for a “technical issue” affecting value realization, yet the Court noted DISH did not quantify this issue. While the Ergen Valuation supports the significant value of LightSquared’s assets for DISH, it lacks sufficient backing for the Plan and SPSO Claim treatment.
Additionally, a valuation from PWP commissioned by the DISH Special Committee estimated LightSquared’s cumulative value between $4.4 billion and $13.3 billion, considering both standalone asset value and potential enhancements to DISH's operations. The Debtors cited both the Ergen Valuation (indicating a 23% equity cushion) and the PWP Valuation (15% equity cushion) as evidence of an equity cushion exceeding the 10% threshold typically deemed sufficient by courts. SPSO disputed the credibility of these valuations due to the alleged “technical issue,” but the Debtors argued that the valuations remain relevant and that the “technical issue” is a distraction with minimal impact on the overall asset value.
The Court acknowledges that, based on the valuation evidence, LightSquared owns valuable spectrum assets but faces unresolved regulatory hurdles that prevent a reliable conclusion regarding the Debtors' valuation and projections. The Moelis Valuation Report is criticized for relying on unsubstantiated assumptions about FCC approvals, and no party can accurately predict when these approvals will occur. Investments by certain Plan Support Parties, characterized as "hundreds of millions" of dollars junior to the SPSO Note, do not convince the Court of the Plan's soundness. The Court refers to the Plan as a complex shell game that obscures the movement of debt and cash within the capital structure, particularly noting that junior investments by Melody are counterbalanced by fees from Harbinger related to a failed plan.
Additionally, the Plan is designed to elevate certain preferred interests ahead of other stakeholders, raising concerns about its fairness. Notably, the Court finds that the Debtors’ asset valuation does not support the treatment of the SPSO Claim under the Plan, making it impossible to determine that SPSO will receive the indubitable equivalent of its prepetition claim, thereby failing to meet fairness and equity requirements for Class 7B under section 1129(b)(1) of the Code. The SPSO Note's features, including differing interest types, longer maturity, and subordinate lien status compared to the Prepetition LP Facility, further contribute to the Court's conclusion that the Plan unfairly discriminates against Class 7B.
A Chapter 11 plan that differentiates treatment between classes of unsecured creditors—allocating asset sale proceeds and avoidance actions to one class, while providing another with a sewer facility title and service agreement—is not deemed unfairly discriminatory. Courts assess whether a plan’s treatment is unfairly discriminatory based on four criteria: (i) the existence of a reasonable basis for discrimination, (ii) necessity of the treatment for plan consummation, (iii) the proposal’s good faith, and (iv) proportionality of the discrimination to its rationale.
In the case discussed, the Debtors assert that the treatment of SPSO's claim is justified due to its acquisition of LP Debt to aid a competitor, DISH, and that the plan is essential for LightSquared’s emergence. However, SPSO contests these claims, arguing the treatment lacks a reasonable basis and fails to ensure full payment, labeling the SPSO Note as potentially worthless. The proposed plan appears to fall short on the first, fourth, and possibly the third prongs of the WorldCom test, as it suggests a stark disparity in treatment: near full cash payment for one class versus a subordinated note for SPSO, which may not yield value for seven years. The treatment does not appear necessary to address SPSO’s competitor status; appropriate covenants could suffice. Furthermore, the rationale that there isn’t enough cash for all does not justify the discriminatory treatment of Class 7B.
The assertion that the Ad Hoc Secured Group's requirement for early cash payments justifies discrimination is rejected. The plan is said to meet the demands of certain constituents, particularly non-SPSO lenders, who expect prompt payouts. However, unfair discrimination is not an acceptable means to address cash shortages. The plan fails to comply with the fair and equitable standards of section 1129(b)(2)(b) and cannot be confirmed due to these unfair discrimination grounds.
Furthermore, the SPSO claim is to be subordinated to the extent that it harms innocent creditors. The court previously concluded that SPSO engaged in inequitable conduct regarding its nearly $1 billion LP Debt claim. While the confirmation hearing did not re-examine earlier adjudicated issues, new allegations of inequitable conduct emerged, particularly accusations from the Ad Hoc Secured Group of a "bait and switch" strategy by Mr. Ergen through SPSO, LBAC, and DISH. They allege that the strategy was devised to gauge interest in LightSquared assets before potentially resubmitting a lower bid. The Ad Hoc Secured Group contends they would not have entered the agreement had they known of this strategy, likening their situation to a fly caught by a spider.
However, there is no documentary evidence supporting the alleged strategy. The presentation to the DISH Board by Mr. Ergen does not substantiate the Ad Hoc Secured Group's claims. Additionally, DISH Board minutes from December 2013 lack any indications of a "bait and switch." Internal documents suggest that a so-called "technical issue" was viewed as a potential obstacle rather than merely a hurdle to resolve. Mr. Ergen's evasive testimony and behavior during the December 11 auction further raise doubts about the legitimacy of the Ad Hoc Secured Group's claims.
Mr. Ergen's attendance at the New York auction with a substantial DISH team, coupled with his counsel's comments regarding the need for additional bidders, raises questions about the actions of LBAC and SPSO. The DISH Board's waiver of its 48-hour meeting notice requirement until January 9, 2014, coinciding with the termination of the DISH/LBAC Bid, further complicates the situation. While LBAC had the right to terminate the PSA and its bid if specific aggressive milestones were missed, the rationale behind LBAC's decision to withdraw remains ambiguous. Possible reasons include perceived technical issues, a desire to make a conditional bid, strategic redirection of DISH's resources, or external litigation concerns. Mr. Ergen's evasive responses during the Confirmation Hearing about his decision-making process add to the confusion.
SPSO has raised additional objections to the Plan, including the failure to meet the “best interests of creditors” test, lack of long-term financial projections, concerns about Non-Debtor Releases, potential impacts on inter-creditor rights, issues with the New DIP Facility, artificial impairment of accepting classes, feasibility challenges, and questions regarding good faith in the Plan's acceptance process. While some objections may have merit, the Court has chosen not to address them in detail due to other grounds for denying confirmation. The Court has previously ruled against the equitable disallowance of creditor claims, making it notable that the proposed reorganization plan appears to circumvent the restrictions of the Prepetition LP Credit Agreement. This includes the Ad Hoc Secured Group's use of "unjust enrichment" claims in their latest strategy.
Subordination of the SPSO Claim was essential to the Harbinger-led plan process, orchestrated by Mr. Falcone to benefit the Ad Hoc Secured Group with a swift cash payout from LBAC's acquisition of LP assets, while anticipating an outcome in the Adversary Proceeding that ultimately did not materialize. As the cases near their two-year mark, a call is made for parties to temper their expectations and hostility to better leverage LightSquared’s spectrum assets.
The court's conclusions include:
i) Denial of confirmation for the Third Amended Joint Plan;
ii) Denial of SPSO’s Motion to Strike McDowell and Hootnick;
iii) Granting the Debtors’ Motion to Strike Hyslop and denying it as to Reynertson;
iv) Denial of the Vote Designation Motion;
v) Denial of the New DIP Motion and related requests, deeming them moot;
vi) Denial of the Exhibit 2 Motion;
vii) Grant of equitable subordination of the SPSO Claim, with the specifics of that subordination to be determined in future proceedings.
Counsel for the Debtors will receive an unredacted copy of Appendix A for distribution in accordance with confidentiality agreements and sealing orders. The decision supersedes a prior Bench Decision from May 8, 2014, and establishes the court's findings of fact and conclusions of law under Bankruptcy Rule 7052, applicable here via Bankruptcy Rule 9014.
Claimants under the Plan may choose to receive consideration in the form of New DIP Tranche B Claims for Converted Prepetition LP Facility Non-SPSO Claims. Class 7B will receive either "SPSO Option A Treatment" or "SPSO Option B Treatment," contingent on whether SPSO accepts the Plan. Since SPSO has rejected the Plan, it will receive SPSO Option B Treatment, with $115 million converted into equity that is subordinate to the proposed SPSO Note. The Specific Disclosure Statement includes form agreements and documents relevant to the Plan Supplement, such as the First Lien Exit Credit Agreement and Reorganized LightSquared Inc. Loan.
Subsequent filings include the Notice of Filing of Plan Supplement Documents on February 17, 2014, and the Modified Debtors’ Third Amended Joint Plan on March 18, 2014. Additional filings on March 21 and March 31, 2014, include documents from J.P. Morgan and Credit Suisse regarding the First Lien Exit Credit Agreement, a Pro Forma Ownership Summary, and an Initial List of Directors for the New LightSquared Entities, with further disclosures promised.
A decision regarding the KEIP Supplement is pending. Exhibit 2, produced by a non-party, was deemed inadmissible due to lack of proper authentication and hearsay issues, and the Motion related to it was filed after the evidentiary record closure, leading to its denial. In September 2013, the Court established a Special Committee to oversee significant actions in the Chapter 11 Cases. A "technical issue" raised by SPSO, DISH, and LBAC regarding LightSquared's spectrum was contested by the Debtors, who presented evidence and testimony asserting that it poses no impediment to the use or value of LightSquared's assets. All proceedings related to this issue are confidential and sealed.
The Court's findings on the "technical issue" are detailed in Appendix A, which is under seal but attached in redacted form. SPSO's valuation expert, Mr. Reynertson, testified about ongoing controversy regarding the lower downlink block, indicating a range of potential outcomes. Mr. McDowell, an FCC Commissioner, stated that the FCC Statement did not alter his opinion, viewing it as a routine filing that preserved legal options and contained no conclusions. He noted that the second amended plan included a contingency for FCC resolution by the end of 2014, which was absent in the third amended plan. Mr. McDowell also mentioned that the deadline for formal objections to the License Modification Application had passed over a year prior. Mr. Rogers revealed he dedicated over 500 hours to the Special Committee's activities, engaging with stakeholders and potential buyers.
Additionally, on May 15, 2013, Mr. Ergen's LBAC submitted a $2 billion unsolicited bid for LightSquared LP's spectrum assets. Following DISH's acquisition of LBAC for $1 on July 22, 2013, DISH announced its intention to bid $2.22 billion through LBAC the next day. DISH also entered into a Plan Support Agreement with the Ad Hoc Secured Group, naming LBAC as the stalking horse bidder for their reorganization plan filed on July 23, 2013. The Debtors and Special Committee subsequently canceled a scheduled auction for LightSquared's assets in December 2013, not designating any bid as the "Successful Bid." On January 7, 2014, LBAC formally terminated the Plan Support Agreement and informed the Ad Hoc Secured Group of the cancellation of the DISH/LBAC Bid.
On January 13, 2014, the Ad Hoc Secured Group of LightSquared LP Lenders filed a Statement and Notice of Intent regarding the confirmation of the First Amended Joint Chapter 11 Plan for various LightSquared entities. This filing included a challenge to L-Band Acquisition Company's (LBAC) termination of the DISH/LBAC Bid, prompting LBAC to seek a declaratory judgment asserting that both the Purchase and Sale Agreement (PSA) and the LBAC Bid were terminated by January 10, 2014. The Court ruled on January 22, 2014, that LBAC lawfully terminated both agreements.
During the period from April 13, 2012, to April 26, 2013, SPSO engaged in purchasing LP Debt, closing trades amounting to approximately $844.3 million. Mr. Ergen presented a valuation titled “Strategic Investment Opportunity” to the DISH Board on July 8, 2013. This valuation estimated the worth of LightSquared’s 20 MHz spectrum assets and satellites between $3.341 billion and $5.213 billion, with a midpoint of $4.277 billion. Additionally, the supplemental value of various spectrum assets was assessed to be between $1.833 billion and $3.783 billion, leading to a combined total estimated asset value for LightSquared in DISH’s hands ranging from $5.174 billion to $8.996 billion, with a midpoint of $7.085 billion.
PWP served as the financial advisor to DISH's Special Committee, formed to evaluate a potential bid for LightSquared's assets and address any conflicts of interest concerning Mr. Ergen's debt purchases. The Second Amended Plan's progression was contingent on FCC approval, which led the parties to consider alternative plans unconditioned by such approval due to timing uncertainties.
Mr. Falcone indicated that under the Plan, Harbinger could pay several hundred million dollars for a call option to increase its stake in the reorganized company from 36% to 45%. The preferred and common stock Harbinger would receive would be subordinate to the SPSO Note. The Special Committee claimed to have established terms that were unfavorable to the Plan Support Parties, contradicting initial conditions proposed by them. Notably, the Special Committee denied Harbinger’s request for board representation in the New LightSquared Entities and accepted litigation claims against Mr. Ergen, the GPS industry, and the FCC as contributions to the estate.
Mr. Hootnick testified that assumptions regarding FCC approval were “outside dates,” with varying expectations for the timeline of the License Modification Application. Moelis based its valuation of LightSquared’s spectrum on discussions with key regulatory figures and projected FCC approval by the end of 2015 for the License Modification Application, which would allow for spectrum use and swaps. A market comparison indicated a valuation range of $0.60 to $0.90 per megahertz POP, with adjustments made for earlier discussed assumptions.
Mr. Reynertson submitted the GLC Valuation Report after only three weeks of experience in spectrum and satellite valuation. There were concerns raised about the credibility of his valuation testimony due to his limited experience. He adjusted the value of LightSquared’s spectrum by factoring in risks associated with obtaining regulatory approval, as reflected in the GLC Valuation Report.
Mr. Reynertson lacked the ability to assess risks independently and did not have reliable assistance for this task. He drew personal conclusions about which interference issues were significant enough to affect the value of the spectrum. Notably, he subtracted the costs associated with relocating NOAA from the value of LightSquared's spectrum due to the License Modification Application. Additionally, he incorrectly applied a double discount for the same alleged defect in the uplink spectrum, failing to account for FCC approval and the intended resolution of interference issues through "guard bands." Mr. Reynertson first encountered the PWP Valuation and the Ergen Valuation reports during his deposition on March 5, 2014, after completing his GLC Valuation Report. He acknowledged that reviewing those reports prior would have been beneficial in understanding the perspectives of other sophisticated investors regarding the spectrum.
The Debtors cited several justifications for classifying a creditor as a competitor, including ulterior motives exhibited during the bankruptcy case and necessity. The court recognized the potential conflict of interest, noting that a competitor might vote differently than a non-competitor lender on significant issues concerning LightSquared, particularly if they had access to non-public information that could harm LightSquared's interests. The court highlighted the competitive dynamics between DISH and LightSquared, emphasizing their race for market position and resources, particularly in light of DISH's hostile bid for Sprint and LightSquared's prior agreements with Sprint. It was evident that DISH intended to be a direct competitor post-bankruptcy emergence.
DISH and LightSquared have previously aimed to partner with or acquire Sprint as part of their spectrum-deployment strategies. Both companies, owning significant spectrum assets, are in competition for valuable partnership opportunities. DISH intends to acquire spectrum and develop competing handsets, while also seeking control of Sprint, which LightSquared had planned to partner with for network development.
Concerns were raised regarding the potential competitive conflicts posed by SPSO, which was suspected to be a competitor. In May 2013, the Ad Hoc Secured Group proposed to classify SPSO’s claims separately in LightSquared's restructuring plan due to these competitive interests. During an auction on December 11, 2013, counsel for LBAC and SPSO expressed concerns about the auction's outcome affecting their clients. Following the cancellation of the auction, LBAC's counsel indicated they were unprepared to close on negotiated terms.
Mr. Ergen testified that he viewed SPSO's claims as frivolous and did not engage with SPSO's counsel regarding specific performance. Although he initially attempted to downplay the competitive dynamics between DISH and LightSquared, he later acknowledged that both would compete in the market for spectrum sales and partnerships. The underlying rationale for classifying SPSO’s claims separately was its status as a competitor to LightSquared.
The excerpt discusses the competitive dynamics affecting the handling of information and approval rights between lien holders and potential competitors in a business context. It emphasizes that the motivations of a competitor differ from those of a financial investor, leading to a need for confidentiality regarding sensitive agreements. Specifically, it cites a past agreement with Sprint that required lender approval, illustrating the importance of keeping competitors, such as DISH, unaware of strategic moves to prevent them from hindering business operations. The governance structure is mentioned as a means to control information sharing, particularly in relation to the competitive landscape. Additionally, there are references to various legal documents and motions concerning the claims of different stakeholders, indicating an ongoing dispute about the prioritization of claims in the bankruptcy process. The SPSO Claim is highlighted as a secured claim that will not be fully subordinated, relevant to the cram-down analysis in the context of the bankruptcy proceedings.
The liens securing the SPSO Note will be third priority, silent liens limited to NewCo and its subsidiaries' assets. During closing arguments, the Special Committee's counsel emphasized that the Debtors' asset value under the Plan increased due to the integration of LightSquared LP and LightSquared Inc., resulting in synergies and the preservation of a valuable net operating loss. The Moelis Valuation Report indicated a higher asset valuation than prior assessments conducted by Moelis, which were related to proposed DIP financing. The Court did not address the appropriateness of the interest rate for the SPSO Note, set at LIBOR plus 12% with a floor of 1%. Evidence presented during the Confirmation Hearing suggested that DISH's engineers were informed by various vendors that a "technical issue" would not prevent the use of LightSquared's Uplinks. An email from Huawei indicated that the "technical issue" was being used strategically to negotiate a lower acquisition price for LightSquared's spectrum.
A Huawei employee expressed optimism about the technical feasibility of making L-band work for DISH, while acknowledging that non-technical factors may influence Charlie Ergen's decision. Ergen attended the auction in New York with a DISH team, which included key executives and technical members, and had a quorum of the DISH Board on standby. Prior to the auction, Ergen consulted the Board and secured a waiver of the usual forty-eight hour notice requirement for meetings until January 9, 2014, coinciding with the start of a trial in an adversary proceeding. The Plan Support Agreement allowed LBAC to terminate with three days' written notice if specific milestones were not met. The relevant court documents and transcripts from the March 26, 2014 hearing detail these proceedings and the associated legal framework.
