457 B.R. 254
Bankr. S.D.N.Y.2011Background
- TerreStar Networks, Inc. and affiliates filed Chapter 11; U.S. Bank served as indenture trustee and collateral agent for 15% senior secured notes highlighting a lien on FCC license-related assets.
- Security Agreement broadly extended a lien to the economic value of FCC licenses (and related proceeds) but carved out the FCC license itself, per 3(f) and related language.
- Offering Memorandum acknowledged the lien did not cover the FCC license itself, linking foreclose rights to license proceeds and regulatory approvals.
- FCC rulings (2000, 2009, 2010) clarified reimbursement obligations to Sprint for BAS relocation costs and treated such obligations as relate to the enterprise, not solely a specific license.
- Sprint asserted the lien should be invalid or subordinated to its reimbursement claim; the Committee supported some counts but argued discovery was incomplete on others.
- Sale of TerreStar’s assets, including the S-Band License, to Gamma Acquisition occurred during proceedings, with proceeds available for distribution under the secured debt.
- The court considered cross-motions for summary judgment on four counts, addressing attachment, validity, and priority of the Noteholders’ lien.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Noteholders’ lien attaches to the S-Band License’s economic value | Sprint contends lien invalid on the license itself; seeks priority over lien on economic value. | U.S. Bank/Noteholders argue lien attaches to economic value of the license; not to the license itself. | Valid lien on economic value; not on the license itself. |
| Whether the lien attaches prepetition and is valid under § 552 | Lien cannot attach prepetition because no post-petition sale/proceeds. | Lien can attach to economic value prepetition and extend postpetition under § 552(b). | Lien on economic value attached prepetition and survives under § 552. |
| Whether Count III’s equities of the case argument should affect lien priority | Equities should subordinate lien to Sprint’s reimbursement based on contributions to license use. | Equities limited and requires complete discovery; not ripe for summary judgment. | Count III not ripe for summary judgment; factual development required. |
| Whether Count IV should subordinate the Noteholders’ lien to Sprint under NYUCC Article 9 and § 506 | Argues subordination based on reimbursement dependence and regulatory conditions. | FCC rulings show reimbursement obligations are regulatory, not priority over liens; court should defer to bankruptcy court. | Count IV denied to Sprint; lien priority not subordinated. |
Key Cases Cited
- MLQ Investors, L.P. v. Pacific Quadracasting, 146 F.3d 746, 146 F.3d 746 (9th Cir. 1998) (permits lien on the proceeds/economic value of FCC licenses; public-private distinction)
- In re Beach Television Partners, 38 F.3d 535, 38 F.3d 535 (11th Cir. 1994) (security interest in proceeds of FCC-approved sale of a license)
- State St. Bank and Trust Co. v. Arrow Commc'ns, Inc., 833 F. Supp. 41, 833 F. Supp. 41 (D. Mass. 1993) (holds creditor security interest in general intangibles incl. license proceeds)