Falcone's wireless company running out of cash

  @ibtimes on December 19 2011 6:52 PM

The upstart wireless company that is being bankrolled by Philip Falcone's $5 billion Harbinger Capital Partners hedge fund could run out of money during the second quarter of 2012, according to the company's financial statement.

LightSquared, which registered a $427 million net loss during the first nine months of this year, may not be able to continue as a going concern unless it can raise additional capital and financing, the statement reviewed by Reuters said.

There is a need to raise substantial capital beyond the beginning of the second quarter of 2012 in order to have sufficient liquidity, the company's statement said.

It's been no secret in the telecom world that LightSquared is in need of cash, but the financial statement paints a fairly bleak outlook for the Reston, Virginia-based company. A failure of LightSquared would be another jolt to investors in Falcone's hedge fund, which has committed more than $3 billion in equity and loan commitments to the company. Falcone gained fame after making billions in 2007 by shorting subprime mortgages.

A spokesman for LightSquared said the company has cash through the next several quarters. A person familiar with LightSquared said the company does not need any additional money until the Federal Communication Commission rules on a company plan for dealing with potential interference issues with global positioning systems. It is not clear when the FCC will rule.

A Harbinger's spokesman was not immediately available for comment.

In July, Falcone's hedge fund loaned about $184 million to LightSquared in return for warrants that can be converted into 2.9 million shares of LightSquared stock, according to the financial statement.

New York-based Harbinger already is LightSquared's largest equity holder - owning all but a small sliver of the company.

Falcone's big bet on wireless has always been a risky one given that the telecom space is one with a history of failure and usually requires significant sums of cash to become operational. But Falcone began raising money for LightSquared at a time the capital markets remained less than hospitable to risky ventures and the network has been plagued by concerns it could interfere with GPS for planes and the military.

The financial statement notes that in the next year LightSquared has significant cash commitments including making a $500 million to $700 million payment to its network partner Sprint Nextel and making $310 million in payments to some of the wireless telecom's debt holders.

If the company fails to obtain the necessary financing on a timely basis, the execution of the company's business strategy could be materially delayed, costs could materially increase or the company may have to discontinue operations or seek a purchaser for the business or assets, according to the September 30 financial statement.

The financial statement reports LightSquared, which plans to provide high-speed 4G wireless broadband services to all corners of the United States, generated just $30 million in revenues during the first nine months of the year.

GPS INTERFERENCE

The wireless company has $4.64 billion in assets, of which the most valuable are its licenses to operate in various broadcast spectrums. The company currently values those licenses at $2.44 billion.

Lack of cash is not the only problem facing LightSquared. Opposition to LightSquared's planned network roll-out continues to grow on Capitol Hill, over concern that the company's available broadcast spectrum will cause interference with global positioning systems used by the Department of Defense and the aviation industry.

LightSquared says it has a plan to deal with the potential interference problems, but some of the company's critics are not convinced. On Capitol Hill, Senator Chuck Grassley, an Iowa Republican, is using the GPS issue to press the Federal Communications Commission to release more information about its dealings with the Falcone-backed telecom.

On December 9, Falcone notified investors in his hedge fund that U.S. securities regulators are considering charging him with a number of securities law violations. The U.S. Securities and Exchange Commission informed Falcone that he could face a civil enforcement action over an allegation his fund engaged in manipulative trading involving an unnamed debt security.

Falcone, in a letter to his investors reviewed by Reuters, said none of the matters the SEC is investigating involve LightSquared.

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