Lights out for LightSquared

Chris Davies - Feb 15, 2012
Lights out for LightSquared

LightSquared is likely to run out of cash within a matter of months, analysts have predicted, after rejection of the company’s LTE scheme leaves little room to renegotiate vast borrowing costs. The FCC ruled yesterday that the risk of GPS interference was simply too great to allow LightSquared’s wireless broadband plans to go ahead, withdrawing its preliminary approval for a 4G network roll-out. Primary investor Harbinger Capital Partners has already seen around $1.5bn in investments wiped out after conceding a significant cut in value last year, and now, Bloomberg‘s sources claim, faces huge a 15-percent interest rate on an outstanding $190m loan.

Exactly how Harbinger will handle those repayments – or, indeed, try to leverage LightSquared’s value moving forward is unclear. With the FCC unlikely to be moved on its technical decision around GPS stability and the spectrum LightSquared hoped to use for LTE, the value of the frequencies has instantly ditched.

The company’s options, BTIG LLC analyst Walt Piecyk suggests, amount to selling the spectrum it holds for whatever it can make back, or attempting to swap it for more flexible spectrum, if the FCC will allow that. Alternatively it could sue the US government – perhaps a likely possibility given its aggressive assertions of malpractice by the FCC – and cut its costs to the bare minimum so as to try to eke things out until that process is complete.

Exactly how long that’s feasible is in doubt, however. Analysts suggested back in January that LightSquared only had sufficient finance for another six months of operations, while signed-up customers – who are yet to start actually paying the company – are already beginning to drift away. FreedomPop, for instance, now plans to use Clearwire’s network instead.

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