WASHINGTON-Fourteen subsidiaries of Dallas-based General Wireless Inc., the third-ranked bidder at the C-block personal communications services auction last year, filed for Chapter 11 bankruptcy protection.
Company attorneys Skadden Arps Slate Meagher & Flom in Washington, D.C.; and Andrews & Kurth L.L.P. in Dallas would not comment on the case, except to confirm that GWI had filed in U.S. Bankruptcy Court, Northern District of Texas, Dallas Division. The first creditors meeting is set for Nov. 25, attorneys said. GWI spokesman Dennis Spickler would not release any comment other than a short written release.
This case will be handled differently than has been the bankruptcy case of Pocket Communications Inc. in Baltimore, in that there will be no creditors’ committee and no employees are involved at the subsidiary level. GWI has not filed any additional petitions, such as those for additional financing, since its original filing date, and no course of action has been mapped aside from the November meeting.
The 14 subsidiaries each serve one license purchased in 1996 for an aggregate $1.1 billion; the parent company remains intact and will pay for the legal proceeding out of house funds. GWI’s major C-block holdings include Atlanta, Miami, San Francisco, and West Palm Beach. GWI is majority-owned by Roger D. Linquist.
GWI apparently did not want to take the time allotted to it, until Jan. 15, to mull over the four financial restructuring options adopted by the Federal Communications Commission in September, deciding instead to take its chances in court.
“The FCC’s recently completed proposed rule making has not produced a commercially viable solution which will allow General Wireless’ subsidiaries to move forward and build out their licensed areas so that traditional wireless service may quickly be offered to the public,” the company said in its written statement issued Oct. 27. “The solutions proposed by the commission do not create an opportunity for rapid deployment of wireless service as envisioned by Congress. The proposals of the commission appear to result from political disagreements and be geared toward retribution as opposed to creating solutions equitable to all interested parties.”
Reacting immediately to GWI’s action, Federal Communications Commission Chairman Reed Hundt circulated a written statement that blamed his colleagues and Capitol Hill for GWI’s demise.
“The decision of General Wireless to seek the protection of the bankruptcy court is not surprising, given the failure of the commission majority to adopt a workable solution for the larger C-block licensees. Now the bankruptcy court must slowly sift through the barrage of clever legal arguments made by the debtor’s lawyers designed to keep these licenses on ice.”
Hundt continued, “It is disappointing that this commission failed to follow the bipartisan direction from Congress to adopt a workable prepayment option that would have avoided this filing. It is equally unfortunate that Congress has not yet provided the FCC with legislation that would eliminate the uncertainties of bankruptcy by making crystal clear that these licenses belong to the American people and that no bankruptcy lawyer can claim otherwise. The end result is that consumers will suffer from delays in the provision of competitive services while taxpayers will lose because of lower re-auction proceeds caused by delay and uncertainty in the marketplace.”
Commissioner Susan Ness forwarded a reaction of her own, saying, “I strongly disagree with the statement issued by Chairman Hundt. The decision of any licensee to file for protection under the bankruptcy laws cannot be blamed on the commission or any group of commissioners. It is not the role of the commission to bail out-to the detriment of both the American taxpayer and the integrity of the auction process-those who overbid or overleveraged. The marketplace, not the FCC, should determine winners and losers. That’s what a market-driven auction is all about.”
Commissioner Rachelle Chong concurred, writing, “The chairman apparently continues to believe that the FCC’s job is to fashion a bailout for every troubled C-block licensee who finds itself in the unfortunate position of entering bankruptcy … This situation is regretful, but one that does not surprise knowledgeable observers. They know that the C-block auction bidding was overheated compared to the A-and B-block auctions, and the chips are now falling where they may. I remind the chairman that the FCC’s goal was not to guarantee success, but to offer opportunities for C-block licensees.”
In its bankruptcy filing, GWI listed no assets and $261.8 million in total liabilities (not counting the amount owed to the FCC for its 14 licenses). In addition, there are 15 claims totalling more than $19 million in fixed, liquidated unsecured debt and seven disputed unsecured claims totaling $33.9 million.
Hyundai Electronics America in San Jose, Calif., was listed as GWI’s largest creditor (aside from the U.S. government), with an outstanding loan to the company for $49.3 million. Lucent Technologies Inc. claimed $2.6 million for unpaid services. Other unsecured creditors included: Brobeck, Phleger & Harrison, Palo Alto, Calif., ($689,468 for professional services); RR Donnelly Financial, Arlington, Va., ($600,00 for professional services); Skadden Arps ($500,000 for legal services); Arthur Andersen, Dallas, Texas, ($203,004 for professional services); and Lloyds of London, Palo Alto, Calif., ($24,017 for insurance).
“It is greatly disappointing that the commission’s proposals inflict such punishment on a scale of this magnitude rather than working with participants in the Entrepreneurial Auction Experiment,” the GWI statement concluded.
