(Reuters) - Hedge fund manager Philip Falcone's dream of bringing another wireless network to the United States appeared to collapse on Monday when LightSquared Inc, the ailing telecommunications company he bankrolled, filed for bankruptcy protection.
LightSquared and many affiliates filed for protection from creditors with the U.S. bankruptcy court in Manhattan in a move that had been widely expected for weeks as Falcone, one of the hedge fund industry's most powerful players, and LightSquared's creditors failed to reach an agreement.
One of the issues both sides haggled over was what role Falcone, whose Harbinger Capital Partners owned 96 percent of LightSquared, would have going forward, people familiar with the matter said.
Creditors no longer wanted Falcone to be the public face of LightSquared and they wanted to cut Harbinger's ownership stake to 50 percent with bondholders getting the other half, people familiar with the matter said.
Creditors, including hedge fund titan David Tepper, had extended their deadline twice already even after LightSquared had violated the terms of its debt. But by Monday it was clear that no last minute deal could be worked out even after lengthy meetings.
LightSquared's future has been in doubt since February when the U.S. government effectively told the company to stop building its network.
In its filing with the court, the Reston, Virginia-based company said it has more than $1 billion of both assets and liabilities, according to the bankruptcy petition.
Financial statements for LightSquared reviewed by Reuters show that LightSquared has about $2 billion in outstanding debt.
According to the filing, some of LightSquared's creditors include Boeing, which is owed $7.5 million, and Alcatel-Lucent, which is owed $7.4 million.
Milbank, Tweed, Hadley & McCloy is serving as general bankruptcy counsel to the company.
For Falcone, who had sunk billions of dollars of his investors' and his own money into LightSquared, the bankruptcy likely spells the end of the trader's career as a professional investor, industry analysts said on Monday.
"It moves him one step closer to having lost everything he's invested in it," he said. "For him to get anything back he'll have to come up with some deal that would deliver well in excess of $2 billion of value for this asset," said Tim Farrar, an independent industry analyst who has followed the situation closely.
Only five years ago, Falcone had been crowned as one of the hedge fund industry's biggest stars thanks to a savvy bet against the overheated housing market which helped grow his Harbinger Capital Partners to about $26 billion in assets under management. By earlier this year that had shrunk to roughly $4 billion.
When Falcone was hot, hundreds of endowments and funds of funds plus wealthy individual investors flocked to his New York-based hedge fund in hopes he would soon repeat the triple digit gains from 2007.
Now Falcone, a former Harvard College hockey star, is being sued by at least one individual investor and other institutional investors who have not been able to get their money out as he locked down the portfolio to conserve cash. They acknowledge they are embarrassed to have been ensnared in what could become the year's biggest hedge fund collapse.
While Falcone has long won over analysts and investors with his smarts, his dream rested largely on the U.S. government's permission for LightSquared to build out the wireless network. When tests showed that LightSquared's network would interfere with global positioning systems used by the military and various industries, the U.S. Federal Communications Commission said it would revoke permission to build out a new high-speed wireless network.
(Additional reporting by Jonathan Stempel in New York; Editing by Matthew Goldstein, Gerald E. McCormick and Phil Berlowitz)