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Will LightSquared’s Falcone Get a Third Act?

Tim Sprinkle
The Exchange

Goodbye, Philip Falcone. It's been real.

That was the general feeling on Tuesday, a day after wireless communications startup LightSquared filed for Chapter 11 bankruptcy protection to address its $2 billion in outstanding debt obligations and dim prospects for the future. The firm is 96 percent owned by Falcone's Harbinger Capital Partners and, according to reports, makes up as much as 60 percent of the hedge fund's $4 billion portfolio.

Of course, none of this is terribly surprising.

Company in a Tailspin

LightSquared has been in a tailspin since February when the Federal Communications Commission (FCC) pulled its conditional support for the company's wireless proposal after tests showed that the provider's satellite-based network could interfere with the GPS signals that aircraft rely on for navigation, potentially compromising safety. As a result, the bankruptcy filing had been expected for several weeks. A final ruling on the FCC application has yet to be released, and Falcone himself was removed as the public face of LightSquared earlier this year at the request of several creditors.

But as the firm's number one financial backer, Falcone has lost big on LightSquared and stands to lose even more. Harbinger was reportedly down 26.7 percent as of February 2012, after losing 47 percent last year, due in large part to writedowns at LightSquared. The fund had about $26 billion in assets under management back in 2007, thanks to some solid plays against the then-soaring housing market, but now there are concerns that the wireless bet could prove to be the undoing of the entire fund. Falcone, who is already the target of a class action lawsuit brought by a group of irate investors, has reportedly expressed an interest in winding down Harbinger Capital Partners and creating a permanent capital vehicle in its place.

"The fate of LightSquared is largely dependent on the FCC's decisions," says media analyst Tim Farrar, president of TMF Associates. "If it follows the course proposed in February then there will probably be little value in the satellite and spectrum assets. If the FCC changes its mind or opens the door to a spectrum swap, then there could be more value for LightSquared's investors. The big question is whether Falcone's continuing involvement will help or hinder these discussions with the FCC. The debtholders seem to think it will make things more difficult, but Falcone himself clearly doesn't."

Latest in a String of Deals

For the billionaire Falcone, LightSquared was just the latest in a string of high-flying deals that made him and his wife Lisa two of the most polarizing figures in New York society, donating millions to charity on one day, being investigated by the SEC the next and showing up in the tabloids all weekend. (The pair was also sued by a disgruntled former domestic staffer back in 2010.) Never a dull moment.

Clearly, Falcone himself will not be leaving town anytime soon, but given the stunning losses associated with his LightSquared investment, it is probably safe to ask whether or not his career as a money manager should come to a close. Who would trust him with their money now?

As for the company, Falcone remains optimistic that LightSquared can bounce back, saying in a statement Tuesday that the bankruptcy filing "provides the company the additional runway it needs to resolve the regulatory issues necessary to move forward."

What's not immediately clear is just how long that runway really is, or if LightSquared is even on it.

What do you think? Should losing billions on LightSquared end Philip Falcone's money management career? Share your opinions in the comments section below.