Lightsquared loans suffer from interference

June 29, 2011

By Matthew Goldstein

It looks like the problems that Phil Falcone’s upstart wireless network may cause with some airline navigation systems may be impacting the price of the more than $1 billion in high-yield debt LightSquared has sold to hedge funds and mutual funds.

Over the past two weeks, the prevailing market price of LightSquared”s four-year term “junk” loans has slumped to about 95 cents on the dollar. That’s still a solid price for the high-yield offering that carries a 12 percent coupon. But it’s down considerably from late May, when the loans were fetching as much as 102 cents on the dollar.

LightSquared’s loans soared in the spring amid optimism that the prospects were looking good for the planned high-speed wireless network backed by Falcone and his Harbinger Capital Partners hedge fund. The optimism was fed by talk of a LightSquared initial public offering later this year, an infrastructure sharing agreement with telecom giant Sprint and a perceived increase in the value of its spectrum holdings.

But now the value of the spectrum–the airwaves on which LightSquared plans to host part of its networks’ signals–is in some doubt in light of the potential interference concerns with global positioning systems used by planes, the Defense Department and many industries.

The slide in the value of LightSquared’s debt coincides with the news that the upstart telecom will use another spectrum band for the launch of its network while it tries to resolve the interference problems.

LightSquared is confident it will be able to resolve the interference issues and the slump in the LightSquared loans may just be a blip, or a reflection of the overall weakness in the high-yield market.

But if concern about the GPS issue doesn’t go away, it’s worth keeping an eye on the price of LightSquared debt as a proxy for gauging investor confidence in Falcone and his telecom dream.


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