LightSquared reaches bankruptcy deal; mediator blasts Ergen

(Recasts with mediator's comments; adds detail from mediator's report, background on LightSquared's dispute with Ergen)

By Nick Brown

NEW YORK, June 27 (Reuters) - Wireless venture LightSquared has reached a deal to end its Chapter 11 bankruptcy, but its largest creditor, satellite operator Charles Ergen, is not on board and "wasted the parties' time," according to a report from the court-appointed mediator.

The mediator, Judge Robert Drain, said he believed the plan would be confirmable by the Bankruptcy Court judge overseeing the case even without Ergen's support.

Drain's report, made in a court filing on Friday, did not give details on the deal.

LightSquared, which is owned by Phil Falcone's Harbinger Capital Partners, had accused Ergen of using underhanded methods to acquire his controlling stake of its debt. The dispute was sent to mediation after Judge Shelley Chapman rejected a restructuring proposed by LightSquared that would have pushed Ergen's repayment behind other creditors'.

Drain, a colleague of Chapman in U.S. Bankruptcy Court in New York, in his report said that Ergen and his investment vehicle "have not participated in the mediation in good faith and have wasted the parties' and the mediator's time and resources."

Ergen's lawyer, Rachel Strickland, did not return a call seeking comment.

According to Drain's report, Ergen sent his wife to one of the three mediation sessions held this month in New York and left another without Drain's permission. Drain called Ergen's behavior "unique," even "in a field where parties are known to assert their positions aggressively and sharp elbows ... are tolerated."

LightSquared earlier this month told Chapman it was mulling a deal premised on new financing from a third party. The company will appear in court on Tuesday to update Chapman on restructuring efforts.

LightSquared went bankrupt in 2012, after the Federal Communications Commission revoked its license to build a massive planned wireless network over fears of interference with GPS systems.

Harbinger, which held most of the company's equity, had hoped for a restructuring that would allow it to retain control. But Ergen slowly accumulated about $1 billion of its senior loan debt, essentially giving him veto power over any plan he disagreed with.

LightSquared accused him in a lawsuit of concealing his identity to get around a credit agreement that barred competitors like Dish from owning company debt. LightSquared said the debt buys were a scheme to wrest control of the company on Dish's behalf, which Ergen denied, insisting it was a personal investment.

Falcone and other Harbinger appointees resigned from LightSquared's board earlier this month.

LightSquared's long and litigious case has not had any heroes. During a trial in May over LightSquared's accusations, Chapman ruled that Ergen had indeed acted surreptitiously, citing his "troubling pattern of non-credible testimony." But Chapman also said that Harbinger's proposal to subordinate Ergen's debt was an illegitimate ploy to punish him rather than remediate damages.

"It is difficult to imagine discrimination that could be much more unfair than that contemplated" by Harbinger, she said.

(Reporting by Nick Brown in New York and Tom Hals in Wilmington, Delaware; Editing by Leslie Adler)