BALTIMORE-Major investor and creditor Pacific Eagle Investments Ltd. has pledged another $5 million infusion to Pocket Communications Inc. to keep the C-block personal communications services licensee going until mid-December. This new deal supersedes a $5 million loan contract that was pending between Pocket and California-based Foothill Capital Corp.
“We had no great desire to invest more, but we also already have $120 million invested (in Pocket),” said Jay Goffman of Skadden, Arps, Slate, Meagher & Flom, Pacific Eagle’s counsel. “We hope the money will help the debtor to stay alive. We want more information and a chance to participate in the reorganization. We hope we can realize something from our major investment, and my client is ready and willing to move forward.”
Weighing in with Pacific Eagle were Pacific Eagle Investment Ltd., Masa Telecom Inc., Ericsson Inc. and Siemens Stromberg-Carlson, collectively known as “the lender.”
According to one attorney present in the courtroom, Ericsson was not in favor of this loan.
As a result of the new financing, Pocket principals Daniel and Janis Riker will be refunded their $25,000 due-diligence down payment made to Foothill earlier this month.
The Pacific Eagle agreement was introduced to Judge E. Stephen Derby and several of Pocket’s creditors just prior to the start of a scheduled June 10 hearing to consider the Foothill/Pocket transaction. Attorneys for the Unsecured Creditors’ Committee, Pocket and the Federal Communications Commission had seen copies of the proposal earlier in the week, and all had signed off on strictures contained in the contract.
“This is a happy occasion for the debtors that is supported by the committee and the FCC,” commented Pocket bankruptcy counsel Paul Nussbaum of Whiteford, Taylor & Preston. “Pocket’s funds would have been gone by the end of the week.”
The lenders and the FCC approved a bare-bones six-month budget forwarded by Pocket that includes funding only for employee salary and benefits, office rental and overhead, payments for sites in Pocket’s Las Vegas and Hawaii markets and certain professional expenses. No monies have been earmarked for buildout in any of Pocket’s markets; construction on the Las Vegas and Hawaii sites was halted more than six weeks ago.
The lenders, while exercising no day-to-day control over Pocket’s business, will have to approve any change in the submitted budgets. In addition, the lenders will be privy to any Pocket reorganization plan; if within five weeks of submission of such a plan all parties do not agree, the loan can be canceled and funding will cease.
The loan agreement also stipulates that Pocket cannot pursue further financing as long as Pacific Eagle’s money is available. “We are putting all of our eggs in one basket, unless we can pay off the lender,” Nussbaum told the judge.
The only witness sworn in by the court to answer questions was Pocket employee Mark Feldman, whose new title-chief restructuring officer and senior vice president-is up for board approval. Feldman, who oversaw the budget that was submitted to the lenders, outlined for the court the steps that had been taken to secure the Pacific Eagle financing, and what would happen-“we would liquidate next week”-if the court did not approve the petition.
“We tried to get unsecured financing, and we were greeted with derision,” Feldman said. “They all wanted collateral.” Although Pocket principals did debate whether to liquidate, he added, they determined that debtor-in-possession financing was “critical to take the reorganization to the next step.” Feldman, who is being paid $300,000 per year for his services, also admitted that he will receive a $100,000 bonus if the Pacific Eagle loan is approved.
Arnold Albert, representing Carr Realty L.P. (owners of Pocket’s Washington, D.C., headquarters office), questioned Feldman regarding when back rent would be paid and how future rent figures appearing in the proposed budget were determined. Feldman could not give a specific date when payment would be received nor could he verify the accuracy of many of the budget figures. Judge Derby assured Albert that his company would be repaid out of Pacific Eagle proceeds.
One disturbing assertion made by Feldman during the course of the question-and-answer period was that Pocket believes its licenses are worth considerably less than the $1.3 billion it paid during the auction, and that the FCC would determine the fair market value of the 43 markets.
Despite protests from Jack E. Robinson of National Telecom PCS Inc. regarding the legality of the FCC taking a subordinated position regarding loan paybacks should Pocket declare Chapter 7 liquidation, Justice Department counsel William Rivera, representing the commission, characterized Pacific Eagle’s claim as a “junior loan” to the FCC’s stake. Both agreed that the FCC would conduct an auction, collect fees and then repay Pacific Eagle should Pocket continue to be unable to find additional operational and buildout funds.
“The United States supports [the loan] because it is in the best interests of both Pocket and of the United States,” Rivera said.
Judge Derby sided with Pocket, the lenders, the committee, the Justice Department and the FCC, ruling that if they had no problem with the repayment terms, neither did he.
This setback has given Robinson, who has been fighting with Pocket since the end of the C-block auction over how bidding was conducted, pause to reconsider future moves against the company. Because the judge ruled in favor of this temporary bail out, Robinson is considering canceling this week’s hearing to push Pocket into immediate Chapter 7. NatTel also has an antitrust suit pending against Pocket.
Robinson plans to file an emergency petition at the 4th Circuit Court of Appeals this week for a writ of mandamus, charging Judge Derby with overstepping his boundaries by allowing Pacific Eagle to be reimbursed first over the FCC should a reauction of Pocket’s licenses occur. Robinson hopes to get a ruling by July 1, prior to the Pocket/Pacific Eagle deal becoming a reality.
