Assignments and Transfers

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Both radio and TV broadcasters either have recently completed the license renewal process, or will be doing so in the next few years. Many broadcasters think that, once their broadcast licenses are renewed, so too are all of the other communications licenses that are operated in connection with their station. While that may be true for broadcast auxiliary licenses, like Studio Transmitter Links and Remote Pickups, there are other FCC authorizations that are not covered by the broadcast license renewal process, and are also not covered by the applications on FCC Forms 314 and 315 for the sale of a broadcast station. If a broadcaster does not pay attention to the expiration dates for these nonbroadcast licenses, or forgets to separately file an application for permission to assign these licenses during a sale of their broadcast station, a fine like the $18,000 fine that was just issued to a radio broadcaster who forgot that earth station licenses are different from a main broadcast license or a broadcast auxiliary license, may occur.

In this case, the broadcaster sold its radio station in 2003, including in a list of auxiliary licenses in its FCC application for the sale of the station, the call letters of the earth station. While the FCC granted the assignment application with the statement that the seller was authorized to assign the station and all authorized auxiliaries, the Commission makes clear in this order that the sale of an earth station is not a broadcast auxiliary, but instead needs a separate authorization from the FCC’s International Bureau before it can be sold. As that authorization was not granted, when the buyer took control of the station (and earth station), it operated that earth station without FCC approval for almost 10 years – without seeking a renewal of the license in 2006 – until the new licensee finally discovered the error and applied for an STA and new license to cover its operations. The FCC determined that the length of the violation required an upward adjustment of the normal $10,000 fine for operating an unlicensed station.Continue Reading $18,000 FCC Fine for Operating Earth Station with Expired License Reminds Broadcasters That Not All of Their Licenses are Covered During the License Renewal or Assignment and Transfer Approval Process

The limits on the ownership of broadcast stations by those who are not US citizens is being re-examined by the FCC according to a recent Public Notice. Under Section 310(b)(4) of the Communications Act, foreign ownership of a broadcast licensee is limited to 20% of the company’s stock, or no more than 25% of a parent company of the licensee. Over the years, there has been a significant body of precedent developed about applying these caps to other business organizations, including LLCs and Limited Partnerships.  But the caps remain in place, limiting foreign ownership.  While the statute gives the FCC discretion to allow greater amounts of "alien ownership", the FCC has not exercised that discretion for broadcast companies (though, for non-broadcast licenses, the FCC has many times found greater percentages of foreign ownership to be permissible). A coalition of broadcast groups last year filed a request asking that the FCC exercise the discretion provided under the Act, and consider on a case-by-case basis whether alien ownership combinations in excess of 25% should be permitted. The Commission has now asked for public comment on that proposal. Comments are due on April 15, with replies due on April 30.

Why is this important? Many broadcasters have pushed for revisions in the alien ownership limits for decades – seeing foreign investors as a potential source of capital to allow new companies to buy stations or existing companies to expand their holdings. Many minority advocacy groups, too, have thought that relaxation of the alien ownership rules would provide more sources of capital for minority owners to get into the broadcast game. Spanish language broadcasters, in particular, see broadcasters and other investors from other Spanish-speaking countries as being likely sources of new investors in broadcast companies or new buyers for US broadcast stations. Continue Reading FCC To Consider Allowing Alien Ownership of More Than 25% of Broadcast Licensees – Comments Due April 15

An uncertainty for the broadcast lending world was by removed by a decision of the US Court of Appeals issued last week. In 2010, a US District Court considering the bankruptcy of Tracy Broadcasting Corporation ruled that a security interest in the proceeds of the sale of a broadcast license could not be enforceable after a bankruptcy action had commenced unless the sale agreement had been signed prior to the bankruptcy – a situation that almost never occurs. As the FCC forbids taking a security interest directly in an FCC license, the practice of lenders for over 20 years, based on past precedent of the Commission, is to secure their loans by a security interest in the proceeds of the sale of the license. When the Tracy case was decided by the District Court, many lenders expressed their concern as to whether that long-standing precedent was still valid. We wrote about the Tracy decision and how it had been rejected by other courts as its reasoning was inconsistent with the prior FCC precedent.

Last week’s decision of Court of Appeals directly overturned the District Court decision.  The Appeals Court looked at the District Court decision, and the economic reality of the situation, and determined that a security interest in the proceeds of the sale was indeed enforceable after bankruptcy, even if the sale agreement did not come into being until after the bankruptcy petition had already been filed. The District Court had looked at certain provisions in the bankruptcy code providing that a creditor could not acquire a security interest in property or rights that arose after the bankruptcy proceeding had commenced. The District Court reasoned that an interest in the proceeds of the sale of a license could only arise after a sale agreement was signed and approved by the FCC. Thus, if the sale and FCC approval did not occur until after the bankruptcy, the rights to the proceeds did not arise until after the bankruptcy, and thus there could be no security interest in the proceeds of that sale. The Court of Appeals rejected that reasoning.Continue Reading Court of Appeals Overturns Case Questioning Lending Practice of Taking Security Interest in Proceeds of the Sale of an FCC License

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

How do you secure a loan to an FCC broadcast licensee? This was the issue discussed by a case released by the Commission last week – addressing the FCC’s policies prohibiting a station creditor from foreclosing on a broadcast license and also restricting the sale of a “bare license.” While this case involved an action for collection by a judgment creditor, it is instructive as to how any broadcast creditor, including a lender to a broadcast licensee, should act to secure loans or other financial obligations of a broadcaster, and how the creditor can exercise its rights in the event of a default. It is also instructive as to how to proceed to enforce a loan obligation to any FCC licensee – in the broadcast services or in the other services regulated by the FCC.  As the FCC has a long-standing policy prohibiting a lender from taking a security interest directly in an FCC license, lenders need to pay careful attention in documenting loans and in enforcing security agreements upon defaults to make sure that their interests are protected. 

Lenders cannot foreclose directly on a license when a broadcaster defaults on its obligations, as the FCC has made clear that a license is not a property right that can be used for security. The FCC has said that a license is not subject to “mortgage, security interest, or lien, pledge, attachment, seizure, or similar property right.”   As the license cannot be attached, to get at the value of the license if there is a default and the debtor won’t cooperate in a voluntary foreclosure, the Lender has to go to court and have a receiver or trustee appointed to oversee the assets of the debtor. An involuntary transfer to a trustee or receiver pursuant to a court order can be approved by the FCC expeditiously on a “short form” (Form 316 in the broadcast services) transfer application. Once appointed, the trustee can sell the sell the station (pursuant to FCC approval on a subsequent "long-form" application) and distribute the proceeds to the creditors. In the case decided last week, the actions of the local court that was attempting to enforce the rights of the creditor gave the Commission pause.Continue Reading Securing a Loan to a Broadcaster – Part 1 – FCC Case Clarifies How a Creditor Enforces Its Rights After a Default