Lightsquared Buys Time with Inmarsat Payment

Lightsquared Inc., the U.S. group attempting to build a wireless network using satellite spectrum, has recently made an overdue payment of $56.25 million to British satellite firm, Inmarsat PLC (ISA.L).

HARBINGER

This payment is in relation to its spectrum-cooperation accord with Inmarsat and has paved the way for the granting of an extension on further installments until April 2014. According to Inmarsat’s press release, “As a result of the amendment announced today, LightSquared will no longer be in default in relation to any payments under the Cooperation Agreement. Notices of default issued by Inmarsat to LightSquared in relation to previous non-payment events will no longer have any effect.”

Lightsquared Inc., is backed by Philip Falcone’s Harbinger Capital Partners. His fund has invested over $3 billion in the venture and hasn’t generated much revenue so far. According to REUTERS, “LightSquared’s plans were derailed when the U.S. Federal Communications Commission in February proposed to stop it from building a high-speed wireless network after tests had found that the network could interfere with GPS services used by everyone from farmers and drivers to airlines and the military”. This major road block has even made Falcone consider filing for bankruptcy , but this new payment to Inmarsat sure looks like he’s not yet ready to give up.

This new accord with Inmarsat PLC has definitely bought Lightsquared Inc. some much needed breathing space to deal with its U.S. FCC problems. According to Lightsquared’s press release, the FCC ruling is “legally unprecedented, not supported by technical evidence, and inconsistent with other recent commission action”.

During proceedings like these, no one really knows how things will turn out for Lighstquared and the FCC. They may or may not get a ruling in their favour and the process itself might be a very complicated one. In short, Harbinger Capital Partners, with its tremendous exposure to Lightsquared Inc., is in a very difficult situation. The remaining investors in the fund don’t necessarily face the risk of losing all their money should the FCC remain adamant with its previous decision. A REUTERS article wrote, “Falcone said a bankruptcy would not necessarily wipe out the equity holders of LightSquared because the spectrum it owns retains value.” On the flip side, these remaining investors also stand to win many times their money back should the FCC decide in Lightsquared’s favor.

In light of this uncertainty, one good way for investors in Harbinger is to try to hedge their investments by buying long-term put options for the traded shares of Harbinger Group Inc. (HRG). These options will serve as their insurance against Lightsquared’s possible bankruptcy because they enable investors to sell shares at predetermined higher prices, even in the event of a bankruptcy. Another good thing about this approach is the fact that it doesn’t require investors to get out of Harbinger completely. By hedging with put options, investors limit their downside while still being able to reap potential profits if Lightsquared Inc. gets the FCC to rule in their favor.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!