WASHINGTON-NextWave Telecom Inc. received the financial backing to allow it to pay the government the full $4.7 billion it bid for personal communications service licenses in 1996.
“The plan would leave the Federal Communications Commission’s claim against NextWave unimpaired,” the company said after the stock market closed on Thursday.
The agreement calls for $1.6 billion in equity investments from Global Crossing Ltd., AT&T subsidiary Liberty Media Corp., Pacific Capital Group and Texas Pacific Group.
“The convergence of wireless and Internet services and the recent mega-mergers, acquisitions and joint ventures in the wireless sector have made these new financing relationships possible for us, creating an opportunity for NextWave to implement its business plan immediately,” said Allen Salmasi, NextWave chairman and chief executive officer.
NextWave filed for bankruptcy on June 8, 1998, rather than participate in an FCC C-block restructuring effort. The bankruptcy case was subsequently challenged by the FCC and went to trial in April.
In a win for NextWave, Judge Adlai Hardin reduced the value of NextWave’s licenses from $4.7 billion to $1 billion, he did so because he said the FCC had erred when it transferred the licenses. The action, Hardin said, was a fraudulent conveyance.
The FCC consistently has said the fraudulent-conveyance ruling impairs the integrity of its auction process.
The government appealed to the federal district court and lost. It then appealed to the U.S. Court of Appeals for the Second Circuit. On Nov. 24, the Second Circuit released a decision reversing the district court’s ruling and remanding the case. But questions remain about where the case has been remanded to because the Second Circuit has not released an opinion explaining its reversal.
In addition, the Second Circuit had placed a stay prohibiting the bankruptcy court from confirming a NextWave plan for reorganization.
In an odd turn of events in the case, the FCC and Department of Justice this August reached a separate pact with Nextel Communications Inc. that would allow Nextel to buy NextWave’s licenses.
“The FCC believes it’s inappropriate to consider any confirmation of a NextWave plan in advance of the issuance of the Second Circuit’s opinion, and in light of the Second Circuit’s stay of confirmation, which is currently in effect. In addition, there are a host of regulatory issues that may need to be resolved in connection with NextWave’s bankruptcy,” said an FCC spokeswoman.
One of the possible regulatory hurdles is whether this new financial agreement will violate the FCC’s designated-entity rules. The DE rules specify that winners of C-block spectrum must be small businesses. However, the FCC was willing to waive designated entity status to allow Nextel to acquire NextWave’s licenses.
“The modified plan of reorganization preserves everyone’s legal rights, including the FCC’s and requires no waivers of the FCC’s [DE] rules for any of the investors, making it a `win-win’ for all parties,” Salmasi said.
A new confirmation hearing, scheduled for Jan. 5, sets into motion a series of events.
First, NextWave must convince the Second Circuit to lift the stay on its confirmation.
The government is expected to oppose lifting the stay, opting instead to wait for the Second Circuit to issue its opinion regarding the Nov. 24 decision.
The stock market on Thursday reacted to the rumors of a NextWave reorganization plan by selling stock in Nextel. It closed down a little more than $6 to almost $93 on Thursday. At RCR press time, Nextel’s stock was $89.
Nextel seems to be involved in the NextWave reorganization process even though it is not officially a party to the proceeding and has been ordered by Hardin to not speak about the matter. During the hearing on Thursday, Justice Department lawyers continually conferred with Nextel attorneys before objecting to the NextWave plan.
