LightSquared estimated its enterprise valuation at $4.5-6.8 billion, with a midpoint value of $5.6 billion, according to an amended disclosure statement filed yesterday with the Manhattan bankruptcy court overseeing its Chapter 11 proceeding.
The company said the enterprise valuation was on an “as-is basis,” and did not take into account the recent bidding levels for spectrum assets under the FCC’s ongoing Auction 97. The company said that an alternative valuation taking into account the values now being bid for spectrum assets in that auction would result in an enterprise value of $9.6-13 billion, with a midpoint of $11.3 billion.
According to the company’s amended disclosure statement, the valuation does not take into account proceeds from pending lawsuits, including claims filed by the company against the FCC and various GPS providers related to the regulatory decisions that have prevented the company from using its spectrum assets to implement its business plan.
Throughout the company’s Chapter 11 proceeding, valuation has been a tricky and moving target for several reasons, including the inherent uncertainty of valuing spectrum assets due to a heavily regulated and illiquid market. And that uncertainty has been exacerbated in LightSquared’s case due to a ruling by the FCC following the company’s acquisition of its spectrum assets that the frequencies of the spectrum are too close to, and could potentially interfere with, the portion of the spectrum used by GPS providers. That has prevented the company from implementing its business plan to provide wireless services, and has made the company’s enterprise value a dicey proposition offering huge potential, but carrying correspondingly huge risk.
As reported, at a status hearing last month to set a confirmation schedule for the case, Joshua Sussberg, the attorney for LightSquared’s special committee of the board of directors, told the bankruptcy court that the question at confirmation will be whether SPSO’s claim in the case is being satisfied in full, which will depend on the company’s valuation (see “LightSquared's new plan embraces Harbinger as Ergen looks for exit,” LCD, Dec. 18, 2014).
SPSO, the investment vehicle of Charles Ergen, the founder and chairman of DISH, a LightSquared competitor, is the holder of a blocking position in the senior debt at the company’s primary LightSquared LP. SPSO is the company’s only major stakeholder that has not signed on to the current reorganization plan, with the company noting that SPSO has been unwilling to support any plan that does not leave it in control of the company.
The current plan offers various enticements to SPSO to obtain its support for the plan, including allowing SPSO’s claim (the amount of which is contested) in full, agreeing not to pursue the equitable subordination of a portion of SPSO’s claim (which has already been authorized by the bankruptcy court, with only the amount left to be determined), and the dropping of certain litigation claims against SPSO filed by Harbinger Capital, the company’s equity sponsor.
For its part, SPSO has yet to say whether it would vote in favor of the company’s proposed plan, but its attorney has told the bankruptcy court that its “primary objective is to get out” of its LightSquared investment, and that it is looking to sell its claim in the case.
According to the company’s disclosure statement, the SPSO claims, which are slated to receive either cash or second-lien term loans on a dollar-for-dollar basis. The disclosure statement identifies the claim as impaired, albeit with a recovery estimated at 100% of value, setting SPSO up for a cram down proceeding if it ultimately decides to reject the proposed reorganization plan.
For now, at least, the company appears on track to meeting the confirmation schedule set last month (see “LightSquared's new plan embraces Harbinger as Ergen looks for exit,” LCD, Dec. 18, 2014), regardless of SPSO’s votes. Indeed, that schedule required the company to file an amended disclosure statement and valuation by Jan. 6, which it did – no small feat in this case, one in which such deadlines have been routinely missed.
Next up for the company is the deadline for objections to the disclosure statement on Jan. 13, a hearing on the adequacy of the disclosure statement on Jan. 15, a voting deadline on the plan of Jan. 26, a deadline for plan objections of Feb. 10, and the beginning of a plan-confirmation hearing on Feb. 23.