WASHINGTON-Unless it receives as-yet-undefined “higher and better alternatives” from potential buyers who would like to purchase the Dallas and Chicago C-block licenses from bankrupt Pocket Communications Inc., a group of Pocket’s creditors may end up with those properties, with Pocket’s remaining 41 licenses returning to the commission for debt relief.
A public notice issued March 23 asks for comments regarding the purchase plan submitted by Ericsson Inc., Masa Telecom Inc., Pacific Eagle Investments Ltd. and its subsidiaries, and Siemens Telecom Networks. Comments are due May 7. An attachment to the notice gave a bare-bones outline of a summary Pocket reorganization that was presented in the U.S. Bankruptcy Court in Baltimore March 20, with much of the original document redacted or “intentionally omitted.” No information regarding the personnel makeup of NewGSM Co.’s operating subsidiaries or its control group was made public; what is known is that Pocket principals Dan and Jan Riker will not be participating in any capacity with NewGSM Co.
“All the FCC is doing is conducting a beauty contest until the bankruptcy court rules,” commented Jack Robinson, president of National Telecom Inc., which has a billion-dollar suit pending against Pocket. “The FCC can’t do anything alone.”
What this public notice may do is open what has been termed “a Pandora’s box” of problems in the context of what other C-block players may do regarding their licenses. Last Tuesday, the commission released its C-block reconsideration order that changed only slightly its four financial restructuring options first presented last August (see related story in this issue). Licensees who may have been considering turning in licenses for prepayment credits on those they wish to keep may reconsider, knowing that NewGSM Co. may be buying the Chicago and Dallas MTA for a 50-percent discount. A spokesman for the creditors told RCR that because of the structure of the Pocket deal-“a complete solution to both the bankruptcy and to getting these markets up and running”-and because of its clauses that address unjust enrichment and other ownership deals, this proposal, if accepted, will not set a precedent for other C-blockers. In addition, Lehman Brothers analyst John Bensche said, “We do not anticipate that this solution will be amenable to other C-block carriers like NextWave, as the equity holders and control group are removed entirely from the company.”
While any details of what NewGSM Co. will commit for the 14 licenses that make up the Chicago and Dallas MTAs was blocked from the FCC’s public notice, a Reuters report speculated that it may only be paying $359 million for licenses that cost $742 million (not counting a previous down payment). Bensche estimated that “the forfeited down payment ($143 million) combined with the net present value of the installment payment scheme laid out by the FCC in its public notice amounts to $398 million or $25 per pop.”
If anyone complains about this deal, Bensche wrote in a client advisory last week, “While a hue and cry that the FCC is not getting full value and should run a reauction is sure to arise, any complainers are invited to submit their own plan of reorganization, and the FCC has reserved the right to drop the current plan in favor of a `better or higher’ one … If you want to pay more, put up or shut up.”
Pocket’s creditors plan to reveal NewGSM Co.’s creditor-repayment plan to the bankruptcy court April 1; it is unknown if that information will be public or will remain confidential.
Bensche also believes that a “beauty contest-bidding war” may take place once NewGSM Co. begins looking for equity investors. The company needs to raise some $750 million to finance its business plan, and it wants to do it without resorting to an initial public offering. He thinks Omnipoint and Western Wireless could weigh in on this.
Without hard numbers and personnel information, potential buyers may find it difficult to craft a plan that tops that of Pocket’s creditors. If the FCC decides that no higher and better alternatives have been received, and if it decides to accept the creditors’ plan, Chicago and Dallas will be purchased by NewGSM Co., which will put in place said operating subsidiaries and a control group. The holding company also would assume $158 million of the creditors’ pre-bankruptcy secured debt against Pocket, along with providing Pocket a loan of some $5.5 million to “pay in full all unpaid administrative expenses other than the original … loan and the additional loan.” If any cash remains, it will be distributed to help pay off $20 million in unsecured claims.
NewGSM Co. also would begin paying for its Chicago and Dallas licenses quarterly, beginning in October 1998 and running until October 2008. Another clause in the proposed transaction said that if either of the two subsidiaries misses a scheduled payment and the license goes into default, it will not affect the other license and its operating subsidiary.
Vendor financing for all personal communications services equipment for Dallas will come from Siemens, with Ericsson committing capital for the Chicago buildout.
