Given that the firm has virtually no path forward to use its frequencies to provide 4G-type services in light (no pun intended) of the apparently unresolvable GPS interference issues, Chapter 11 gives LightSquared a way to step back and see what it can salvage of their operations.

In a Chapter 11 bankruptcy proceeding, in most cases, the debtor remains in control of its business and operations as a “debtor in possession.” The day-to-day operations are subject to the oversight and jurisdiction of the federal court (and typically the trustee). The goals of a Chapter 11 proceeding is for the company to find the cash to emerge from bankruptcy having paid its creditors some portion of the amount due, cancelling or renegotiating some contracts, and then resuming normal operations after completing the bankruptcy.

It seems pretty clear to me that the $9B contract LightSquared entered into with Sprint will be a target for cancellation.  That will place even more pressure on Sprint to fund its Network Vision project.

A Chapter 11 bankruptcy proceeding is is very different from Chapter 7 proceeding.

In a Chapter 7 bankruptcy action the business ceases its regular operations.  The court-appointed trustee sells off all of the business’s assets and distributes the sale proceeds to the creditors. If there’s any money leftover after all the creditors are paid, that balance is returned to the owners/shareholders of the bankrupt company, and the company ceases to exist.

Sometimes a firm starting out on a Chapter 11 bankruptcy path can still end up shutting down.  It would not surprise me if that’s the case with LightSquared, especially if they are forced to sell off their licensed frequencies.

Time will tell.

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