September 2011

When an FCC licensee goes bankrupt, the question of how to treat the interests of secured lenders is the one that, from time to time, comes up for debate. Two recent cases deal with this issue – one appearing to be an aberration that would make lending to a broadcast licensee difficult if not impossible, while the second providing a more lender-friendly interpretation after a detailed analysis of the history of FCC and court precedent on this issue, affirming what most in the broadcast community have assumed, for most of the last two decades, is settled law. We wrote last week about how the FCC’s prohibition on taking a security interest in an FCC license can make enforcement of liens difficult in a normal debtor-creditor context. Today, we’ll look at how the FCC’s prohibition on taking liens in a license has significance in the bankruptcy context.

Due to the FCC’s prohibition on taking a security interest in an FCC license, if the FCC reviews any security agreement with a licensee company, it will insist that lenders need to make clear in such agreement that the lender has no security interest directly in the FCC license.  In most agreements, lenders now have that language, with a caveat that such an interest is renounced only for so long as FCC policy remains in its current state – though, as set forth below, that policy does not look like it will change anytime soon. As the FCC license is usually the most valuable asset of a licensee, to preserve its ability to get at the value of that license in the event of a default on the loan, even though it cannot take a lien in the license itself, the lender will include a provision in its security agreement that gives it a secured position in the proceeds from any sale of that license and in all other intangible assets of the licensee. Having a secured interest is important to lenders as it gives the lender priority over unsecured creditors in the event of a bankruptcy. Thus, if the lender goes into bankruptcy and there are insufficient funds to pay all creditors (as is usually the case), the secured party will get first crack at the assets that are available to pay debts.  The question of whether such priority should attach to the proceeds from the sale of an FCC license, when that sale may not occur until after the bankruptcy has been declared, was the heart of the controversy in the recent cases.Continue Reading Securing a Loan to a Broadcaster, Part 2 – Bankruptcy Cases and Liens on Licenses

The FCC today made it easier to move an FM translator from one location to another, but at the same time adopted new policies that seemingly restrict how far a translator can be moved.  Today’s decision  uses a waiver process to relax the rules so as to permit a move of a translator a greater distance in a single application, but the decision also labels multi-hop moves as an abuse of the Commission’s processes.  As translators have become more important to broadcasters as a way to bring AM and HD-2 signals to a wider audience, this decision will have an immediate and significant impact on many broadcasters, once it becomes clear exactly what are the parameters set by the Commission.

Under Section 74.1233(a) of the FCC rules, a minor change for an FM translator requires that the facilities proposed in an application have a 60 dbu contour that overlaps with the translator’s current licensed 60 dbu.  In effect, this is saying that part of the protected service area of the proposed new facility must overlap with the current protected service area served by the station from its licensed facility.  As major change applications can only be filed during designated translator windows (and there has been no FM translator major change window since 2003), to make any move in a translator, it must be a minor change.  The decision today allows, through a waiver of the rules, a minor change application to be used if the licensed facilities preclude construction of the new facilities, i.e. if the interfering contour of the licensed facilities of the translator overlap with the protected contour specified by the application for new facilities.  A the interfering contour goes much further than the protected contour, this allows the FCC to approve in a single application a move of a greater distance than would be allowed under a strict reading of the rule.  However, there were significant conditions imposed on the application of this new waiver policy that may preclude longer moves that have been common in the last few years. Continue Reading New Policy on FM Translator Moves – Bigger Moves Permitted In One Hop, But Multiple Hops are an Abuse of FCC Processes

Broadcasters, along with virtually every other business, are supposed to have a bulletin board someplace in their place of business, accessible to employees, where all sorts of notices, many required by Federal law, are posted.  Sometimes the posting requirement has been expanded to include posting on a company intranet, if that is a common way of communicating…