BALTIMORE-Pacific Eagle Investments Ltd., Masa Telecom Inc., Ericsson Inc. and Siemens Telecom Networks-collective creditors to bankrupt C-block personal communications services licensee Pocket Communications Inc.-have withdrawn a lawsuit filed in U.S. Bankruptcy court here Feb. 18 that was crafted to block any government efforts to reclaim Pocket’s licenses as part of any financial-restructuring option. They also alleged that in granting Pocket its licenses, the Federal Communications Commission may have committed a “fraudulent action.”
“This action was just a prophylactic measure, just in case the FCC did not change the election date,” said Ken Irvin of Morrison & Foerster L.L.P., which represents Siemens. The FCC did postpone the election date for at least two months.
The lenders had asked the court for a declaratory judgment that would make Pocket’s 43 licenses “property of the estate,” that would stay the Feb. 26 election for Pocket and that would enjoin the commission from taking the licenses or reinstating Pocket’s interest payments on them.
According to the lawsuit, the lenders “hold approximately 80 percent of the non-FCC debt … and provided the $4.8-million debtor-in-possession financing for the debtors.” Since last summer, the DiP lenders have been perfecting a business plan aimed in part at gaining Pocket’s Dallas and Chicago markets (paying some $670 million) for themselves via a new company and in paying off some of Pocket’s outstanding debt.
“From the outset of these cases, the DiP lenders advised the debtors and the FCC that, in their view, the transfer of the licenses to the debtors and the incurrence of more than $1.4 billion in debt to the FCC may have constituted a fraudulent transfer because the obligations incurred vastly exceeded the value of the licenses, and the debtors were rendered insolvent as a result of the transaction,” the lenders wrote. “This exact issue currently is being litigated in another bankruptcy court involving another C-block auction `winner,’ General Wireless Inc.”
When Pocket told the commission last December that it planned to prepay its Las Vegas license and turn in the other 42, and that it would eventually auction off Las Vegas itself to pay debt, the DiP lenders filed an objection to this. If Pocket were to return all but one of its licenses to the FCC, they argued, it would mean all of Pocket’s assets would disappear, and that no unsecured creditors would ever see compensation.
“Moreover, election of (this option) might cause a release of litigation rights based on the fraudulent transfer claims,” they added. “Any relinquishment by creditors of such valuable litigation rights should be made only under a plan of reorganization.”
The lenders pointed out that if Pocket returns its licenses, the bankruptcy court’s jurisdiction over them would be gone and creditors would have no opportunity to vote on Pocket’s proposed action.
Moving forward, Siemens counsel Irvin said that a deal with the FCC for Chicago and Dallas could be announced soon, and that although the DiP lenders and/or their parent companies are foreign entities, the structure of the new company that would own and build out those markets would comply with FCC rules governing foreign-ownership caps.
In a written statement, Jack Robinson, president of National Telecom PCS Inc., which also is one of Pocket’s creditors, called such a deal “laughable.”
“First of all, how can a bunch of foreign entities, none of whom qualify as designated entities, hold C-block licenses anyway? Second, good luck to them or anyone else in trying to purchase licenses which are subject to NatTel’s petition to deny. Finally, even if the plan was legal, which it isn’t, their proposed $670-million investment isn’t enough to both buy and build out Chicago and Dallas. It would cost $670 million just to purchase those two licenses, and the buildout would easily cost another $300 million over the next two years, just for the privilege of competing with no recognizable brand name in two of the most ruthlessly competitive wireless markets in America. They’re dreaming.”
