More bankruptcy valuations as FCC licenses retain private economic value including goodwill

Long-established law prohibits the owners of FCC licenses from pledging the licenses themselves as collateral. Aware of these federal regulations, a mobile satellite provider granted its secured note holders an interest in all economic proceeds from the “sale, transfer, or other disposition” of their FCC licenses as well as any related “goodwill or other intangible rights.” After the company went bankrupt, the Sprint Nextel Corporation sued for the $104 million that it cost them to clear the satellite bandwidth previously owned by the debtors. To satisfy its admittedly unsecured claim, Sprint sought to void or at least gain seniority over the secured note holders’ interest by filing various motions in the bankruptcy proceeding, essentially arguing that the note holders’ lien in the economic value of the licenses was invalid under the same law that precludes granting a collateral interest in FCC licenses themselves.

An opportunity for bankruptcy analyses? Despite some prior conflict among federal court and administrative rulings concerning an owner’s private interest in an FCC license versus the FCC’s public right to regulate its transfer, in this case, the note holders had a valid secured interest in the “economic value” associated with the debtors’ license, “even if they cannot hold a lien on the FCC license itself,” the court held. Read the entire digest of In re Terrestar Networks, Inc., 2011 WL 3654543 (Bkrtcy. S.D.N.Y.)(Aug. 19, 2011) in the October 2011 Business Valuation Update; the court’s complete opinion will be posted soon at BVLaw.