February 21, 2012
As FCC Revokes Approval, LightSquared Misses $56M Payment To Inmarsat
The British satellite telecommunications company Inmarsat has issued a notice of default to the U.S.-based firm LightSquared after it failed to make a $56.25 million payment on its debt. Amidst numerous setbacks – including the unanticipated revocation of FCC authorization – the American company is struggling to implement its plans to develop a 4G LTE wireless broadband communications network integrated with satellite coverage across the U.S.
Inmarsat alleges that LightSquared is required to make an initial payment upon completion of the first phase of their agreement. And therein lies the apparent source of the financial squabble.According to LightSquared, the payment had not been made because Inmarsat had as yet failed to reply to a number of issues it had raised.
“LightSquared has raised several matters that require resolution before the first phase comes to a close,” said a spokes from the American firm.
Inmarsat sent out the default notice on Monday, which grants LightSquared an additional 60 days to make the transfer before it initiates the termination of their agreement. An anonymous individual close to Lightsquared told Reuters that the companies´ agreement stipulates a so-called “cure” period so as to avoid an automatic default–a last-resort solution that is presumably undesirable for both firms.
The British company has assured investors that its core business, which consists of providing satellite-based communications to a variety of transportation industries around the world, would not be affected by a missed payment. It also conceded, however, that it could not guarantee that it would receive future payments from LightSquared.
Inmarsat also reported that the two companies have initiated closed-door talks which will likely include LightSquared´s principle financier, billionaire American businessman and founder of Harbinger Capitol, Philip Falcone.
Since getting the initial go-ahead from the FCC in January 2011 to use terrestrial-only devices for its services, LightSquared has seen its plans plagued by technical issues. By far the most significant of these has been the resistance the plans have met from the United States Air Force. The Air Force has opposed the FCC waiver, arguing that LightSquared´s network could potentially interfere with existing GPS systems which are operated by the military.
Last week the FCC announced its plans to revoke the authorization it granted to Lightsquared last year, casting serious doubts on the viability of the company´s plans. A number of industry analysts are already speculating that the ambitious project has hit a dead end, leaving few options for the company but bankruptcy.
However, some industry insiders believe it is still too early to say exactly what will come of the agreement between Lightsquared and Inmarsat, which was intentionally designed to leave the former a bit of financial wiggle room in the event of just such a contingency.
What´s clear, however, is that by reneging on its initial authorization, the FCC has dealt a serious blow to Falcone´s Harbinger Capital Partners which has already invested some $3 billion in the project.
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