WASHINGTON-According to a June 3 petition filed at the U.S. Bankruptcy Court for the District of Maryland, C-block personal communications services licensee Pocket Communications Inc. is courting a white knight for a temporary financial bail out. Although the court has given Pocket, currently in Chapter 11 reorganization, permission to go ahead with a preliminary due diligence prepayment to Foothill Capital Corp.-which may lend Pocket $5 million-a meeting is scheduled tomorrow between “interested parties” and the debtor to discuss the pending motion for debtor-in-possession financing.
If Pocket is successful in negotiating the loan from Foothill, the funds will only cover salaries and overhead until the end of the year. In addition, Daniel and Janice Riker, Pocket’s top principals, have had to pledge $25,000 of their own funds as a deposit before the deal can be completed. The company claims to have only $200,000 in liquid cash at this time; without an infusion from Foothill or any other lender, Pocket will cease operations June 11.
“The debtors are aggressively pursuing arrangements for raising capital and expect to consummate a plan of reorganization before the end of 1997, which … will be funded by a permanent capital infusion from one of several sources currently under negotiation, each of which is individually capable of supplying the buildout financing necessary to take debtors’ business to an operational level,” Pocket wrote. “The prospective DiP financing being negotiated is expected to be secured by all assets of the debtors’ estates including, upon the anticipated consent of the Federal Communications Commission, a lien on proceeds of the licenses, and on terms to be agreed upon among the debtors, the DiP lender and the FCC.”
If Pocket is allowed to move forward on its proposed DiP financing agreement, all expenditures by the company will have to pass FCC and Foothill muster-a plan that, in effect, makes FCC officials Pocket board members, which is against the law. The FCC also is considering a Pocket proposal that it subordinate its first claim to any revenues recovered as a result of a default and reauction of Pocket’s 43 PCS licenses. While the commission has released no formal acceptance of this plan, a source close to the issue told RCR that the Wireless Telecommunications Bureau will allow Foothill to recover its $5 million loan first should Pocket tank.
A confidential 1997 cash forecast submitted by Pocket to the bankruptcy court showed that, as of June 13, the company would have a cash balance of $58,669; as of June 20, that balance would grow to $518,423 and June 27 to $846,616. Although the Foothill loan totals $5 million, $2 million of that will be earmarked for “professional expenses,” including lawyers’ fees, and the remaining $3 million could be gone by Labor Day.
The creditors’ committee chosen by the U.S. Trustee to oversee the reorganization of Pocket and the repayment of loans does not, according to Pocket, object to its pursuit of the Foothill loan. One unsecured creditor, National Telecom PCS Inc., which has pushed the court for a hearing next week that could move Pocket from Chapter 11 reorganization to Chapter 7 liquidation, has protested this DiP plan vigorously.
In its objection to the DiP financing, NatTel told the bankruptcy court that the $5 million “will merely postpone the inevitable and liquidation of Pocket,” and that “the proposed DiP financing is illegal because it requires the United States Government to take a subordinated position … in clear violation” of U.S. codes.
“If Foothill takes a senior position to the U.S. Government under Pocket’s DIP financing structure, then clearly the rights and equities of the United States will have been interfered with,” NatTel wrote. “Even if this court were to somehow allow Foothill to enter such a transaction with Pocket, it would still be the statutory duty of the Justice Department to seek the cancellation and annulment of such an agreement.” NatTel also wrote that the FCC cannot take a subordinated position to any other entity because such action would decrease the amount of revenues gained by a reauction, thus playing havoc with monies earmarked by Congress for the Treasury as a means of reducing the deficit.
