Federal regulators delivered a near death blow yesterday to Phil Falcone’s troubled LightSquared venture, saying the government would revoke the initial approval it granted the company to operate its high-speed wireless network.
The Federal Communications Commission said it planned to suspend the license after a key government report determined that the network’s signals interfere with GPS devices.
“The commission clearly stated from the outset that harmful interference to GPS would not be permitted,” the FCC said. “The commission will not lift the prohibition on LightSquared.”
The FCC said its decision was based on a report yesterday by the National Telecommunications and Information Administration, whose tests of LightSquared’s network found “there is no practical way to mitigate the potential interference at this time.”
The company didn’t immediately return messages seeking comment on the FCC’s decision released late yesterday. But earlier in the day, LightSquared said that it “profoundly disagrees” with the NTIA’s report.
The FCC said it would take comments on its decision and the NTIA’s findings.
The pressure is on LightSquared to find a resolution and raise more money to continue operating. Falcone’s investment firm, Harbinger Capital, has already sunk $2.9 billion of the fund’s assets into LightSquared, to the dismay of many investors.
The FCC action comes on the heels of another diss for Falcone. A $190 million loan to Harbinger from Jefferies & Co. carries an unusual covenant — it will automatically default if Falcone is indicted.
The debt carries a whopping 15 percent interest rate, translating into a $28.5 million annual payments.
The loan documents stipulate that Harbinger would default on its loan if either Falcone or any other Harbinger exec is criminally charged by the Justice Department or civilly charged by the Securities and Exchange Commission, according to Bloomberg, which first reported the unusual covenant.
The SEC and federal prosecutors have been investigating Harbinger, including allegations of market manipulation, as well as a $113 million loan Falcone took from one of his funds.
The Harbinger loan also maintains a so-called “key-man” provision that would trigger a default if Falcone cuts his stake in the hedge- fund operation or if he becomes less active in managing the company.
A Harbinger spokesman described the key-man provision as standard practice given Falcone’s importance at the hedge fund he founded in 2001.
A Jefferies spokesman declined comment