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A Tale of Two Bankruptcies: Colorado Court Rejects and New York Court Upholds Validity of Security Interests Associated with FCC Licenses

Over the past year, a bankruptcy proceeding in Colorado In re Tracy Broadcasting has called into question creditors ability to take a security interest in the proceeds from the future sale in bankruptcy of spectrum licenses issued to borrowers by the Federal Communications Commission. But, in a contemporaneous proceeding aligned with the majority view In re TerreStar the influential Bankruptcy Court for the Southern District of New York upheld the right of the TerreStar creditors security interest in the proceeds from the sale of the companys FCC licenses and sharply criticized the Tracy decision. In light of these seemingly contradictory decisions, FCC-regulated borrowers and their creditors may wonder whether the decision in Tracy, although an outlier to the prevailing view, changes the landscape of courts treatment of security interests in proceeds from the sale of FCC licenses a shift that could impede the value of collateral packages within the communications and broadcasting sectors. We address the cases from the perspective of what Article 9 of the UCC permits and what limitations FCC regulations impose. Taken together, we offer clarity on the differing analyses of the dueling decisions and provide practical advice to broadcasters, lenders, and practitioners on navigating secured finance in the communications and broadcast sectors.

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