security interest in FCC license

It is not every year that the FCC seriously asks broadcasters for suggestions as to what rules it should abolish or modify, but that is exactly what the FCC is doing in its Modernization of Media Regulation proceeding (about which we wrote here and here). Comments due the week after next, on July 5, and broadcasters should accept the invitation and suggest rules that are ripe for repeal or amendment. I recently spoke at the Wisconsin Broadcasters Association’s annual convention and the broadcaster who chaired the association’s Federal legislative committee urged all broadcasters in attendance to register their ideas for reforms. That comment made me realize that many broadcasters may not be taking this invitation seriously.

The number of changes already made in broadcast regulations in the less than 6 months that Chairman Pai has headed the agency (e.g. reinstating the UHF discount, abolishing the requirements for letters from the public in the public file, allowing online recruitment to be the sole means of EEO wide dissemination of job openings, relaxing the location restrictions on FM translators for AM stations, relaxing the limitations on noncommercial fundraising, abolishing the obligation for noncommercial stations to report the social security numbers of their board members, the rescission of FCC enforcement actions for political violations, and the revocation of a policy statement against shared services agreements) demonstrate that this Commission is serious about deregulation. There has perhaps never been as real an opportunity as now to make your voice heard about the broadcast rules that should be relaxed as part of this proceeding. What rules should be examined by the FCC?
Continue Reading Modernization of Media Regulation – What Rule Changes Should Broadcasters be Requesting?

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

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