WASHINGTON-Despite the optimism expressed fewer than two weeks ago by Daniel Riker, chairman and chief executive officer of Pocket Communications Inc., regarding the financial future of his C-block personal communications services company, things apparently were not as rosy Riker described them.
Citing the preservation of Pocket’s assets coupled with a reorganization of its operations and financing, Riker sought Chapter 11 bankruptcy protection March 31 following unsuccessful negotiations with several of its investors Easter Sunday.
According to the document filed in U.S. Bankruptcy Court for the District of Maryland-Northern Division, Pocket listed assets totaling $993 million and total liabilities of $1.4 billion, mostly attributable to its Federal Communications Commission license debt. Six investors hold more than $86 million in fixed, liquidated secured debt; and seven hold $95 million in contingent, unliquidated, unsecured debt. Fourteen entities hold 29.9 million shares of Pocket’s common stock.
There is every possibility that Pocket’s 43 licenses-including Chicago, New Orleans, Honolulu, Dallas, Las Vegas and St. Louis-could go back to auction, and it is certain that the price per pop would fall dramatically from what was paid originally, maybe even as low as 10 cents on the dollar.
At press time, many of Pocket’s creditors still had not been apprised of the bankruptcy action, and most of those who were informed would not comment on the development. Ericsson Inc., one of Pocket’s vendors, issued a written statement that said in part that it “views this move positively and believes it will give Pocket the opportunity to improve the company’s business.” Ericsson along with another vendor, Northern Telecom Inc., have committed to $481 million in financing to Pocket. The manufacturer also said it had a vendor-financing commitment to Pocket, but that little of the equipment involved had been delivered.
“[This] means that Ericsson will not be significantly affected financially,” it added. “Furthermore, the sum mentioned … has not yet been listed as a firm order by Ericsson.”
A spokeswoman for engineering firm LCC, L.L.C. in Arlington, Va., which has contracts with Pocket for network buildouts, told RCR, “We’re confident in the company, and the contracts still stand. Spectrum still is very valuable. It’s a setback, but we’re hopeful Pocket will work itself through this.”
Calling his action a “temporary measure to ensure the long-term viability of the company,” Riker commented in a written statement, the “filing is a prudent step for Pocket. It enables the company to develop a plan to improve our financial health and continue the build out of our PCS markets.”
That buildout has halted as a result of the bankruptcy filing, and personnel layoffs-management and subordinates alike-began last Tuesday.
Pocket has four months to present a reorganization plan to the court, including new business and pay-off plans. In a telephone interview following its filing, Riker told RCR that he thought a financial agreement had been struck March 28 with three creditors, including Hong Kong-based Pacific Eagle, to continue a waiver of default regarding an interest payment on a Pacific Eagle loan. Terms regarding the continuance of such a waiver were presented March 30, reportedly including a management change; Pacific Eagle also was in a position to claim some PCS licenses as payment if Pocket rejected the terms. Finding the conditions “unacceptable,” Riker chose bankruptcy.
“They would have been free to take the licenses, and I had to protect the business,” Riker said. “Three creditors could have taken control and destroyed the company.” Riker claimed that there is enough money in company coffers to keep it going “for a while,” and that “finances were not a factor in our decision.”
However, there are those in the industry who attribute Pocket’s failure to the fact that the company was never able to attract an A-team of financial rainmakers to ensure viability and that there never was a “savvy” management team in place. Most agree that a new management team will be in place following any emergence from Chapter 11.
Pocket’s top 20 secured and non-secured creditors will be meeting in Baltimore April 16 to form a creditors’ committee to oversee the legal and financial aspects of Pocket’s reorganization. Even though the FCC is the largest creditor, it is prohibited by law from participating on the committee; the agency is expected, however, to have representatives at the meeting as observers.
Not included as a creditor in Pocket’s filing was National Telecom PCS Inc., which has been fighting the award of Pocket’s C-block licenses since last summer, including a $1.1 billion antitrust lawsuit filed against the company two weeks ago. NatTel President Jack Robinson filed proof-of-claim paperwork in Baltimore that will be attached to the case, making NatTel the largest unsecured creditor to the estate, next to the FCC.
Robinson told RCR that he and his partner, Dan Carpenter, are bankruptcy attorneys, and that not only have they come up with a restructuring plan they hope to present at the meeting, but he hopes Carpenter will be elected committee chairman.
Robinson also wrote to FCC Chairman Reed Hundt April 2 to claim vindication following Pocket’s bankruptcy filing and to ask for an immediate remand of NatTel’s pending application for review regarding Pocket’s licenses.
Telling Hundt that his petition should not be automatically stayed by provisions of the U.S. Bankruptcy Code, as would normally be the case, because there are “certain governmental regulatory actions” that can move forward, Robinson wrote, “Clearly, the commission’s regulatory power extends to a petition to deny the licenses which Pocket won at auction. And given recent events, there just cannot be any doubt whatsoever that Pocket’s entire ownership and financial structure as well as its fitness qualifications to be a licensee now need to be investigated seriously and with all due haste.”
A footnote contained in the Hundt letter regarding Pocket’s fitness said, “In today’s issue of The Washington Post, Mr. Riker is quoted as saying that the primary reason for the bankruptcy filing was to prevent one of Pocket’s foreign investors, Pacific Eagle, from `seizing the licenses’ due to a missed interest payment. If so, then NatTel’s petition to deny should have been granted because it is a violation of Section 310(b) for a foreign entity to be able `seize control’ of a FCC license.”
Many wireless licensees-Pocket and NextWave Personal Communications Inc. included-are looking forward to Jan. 1, 1998, when the World Trade Organization agreement allowing 100-percent foreign ownership of U.S. communications companies kicks in-if Congress allows it.
Pocket spokesman Kevin Inda, clarifying Riker’s statements to the press, admitted to RCR that Pacific Eagle and two other investment entities-all three foreign-did have the power to seize company assets, including the licenses-and then form a transfer-agent company that would work within FCC guidelines to find a qualified U.S. buyer. This statement flies in the face of one made by Riker March 27, when he told RCR that vendors could not take over the company and that they would not sell, due to the volatility of the wireless valuation market today. Riker also called the holding-company agreement contained in its S-1 filing as “just a legal structure” and “paper corporations,” but it turned out that they were strong enough to force the bankruptcy card.
