The Ad Hoc Committee representing the majority of DBSD’s 7.5% convertible noteholders has again moved to block DTH broadcaster DISH Network’s attempts to take control of MSS operator DBSD North America.
At the start of February, DISH announced that it…
The Ad Hoc Committee representing the majority of DBSD’s 7.5% convertible noteholders has again moved to block DTH broadcaster DISH Network’s attempts to take control of MSS operator DBSD North America.
At the start of February, DISH announced that it had entered into an investment agreement with the board of DBSD, formerly ICO North America, which would see DISH acquire the latter for approximately US$1bn following its exit from Chapter 11
bankruptcy protection. The proposal would also see DISH provide DBSD with an US$87.5m debtor-in-possession multiple-draw credit facility.
Under the terms of DISH’s agreement, holders of the 7.5% convertible senior secured notes, which were due 2009, would have all their claims paid in full, while DBSD’s previous DIP financing and exit facility will also be fully repaid.
As for DBSD’s general unsecured creditors, of which mobile operator Sprint Nextel is the largest, they will receive partial payment of their claims, while certain additional bankruptcy claimants are to be paid in full.
The move prompted fierce criticism from the Ad Hoc Committee as well as Sprint Nextel, both of whom argued that the agreement significantly undervalues the business.
Indeed, the Ad Hoc Committee went further. In its objection, the creditors’ legal counsel Milbank, Tweed, Hadley & McCloy, stated that: “The DISH documents were the product of a negotiation led by a self-interested insider of the Debtors (DBSD) who stands to make hundreds of thousands of dollars if the DISH option is consummated (and hundreds of thousands of dollars if the Debtors stay in bankruptcy), approved by an uninformed and conflicted board of directors, are fundamentally value-destructive to the Debtors’ estates, and will ensure nothing more than the Debtors’ continued languishment in bankruptcy for at least a year, and more likely several years.”
The objection also alleges that the investment agreement is actually more of an option contract in which DISH has “the right, but not the obligation, to close on the transaction at any point during the next 14 months.” As such, it claims that the parties who bear all the risk of the potential decline in the value of DBSD over that period are the existing stakeholders of the debtors, primarily the senior noteholders.
The deadline for filing reply papers in support of the DISH motions is 24 February and at the time of going to press DISH had not filed a response to the objection. However, ICO Global had already filed its response in which it supported the DISH motion.
Via its legal counsel Morrison & Foerster, ICO stated: “ICO Global believes that the Debtors must implement an open and competitive process for the acquisition of the Debtors’ assets that ensures a fair allocation of value amongst the Debtors’ stakeholders. While there are various aspects of the DISH Motion that ICO Global believes should be modified to accomplish this result (most notably the ‘no shop’ provisions of the Investment Agreement), on balance, ICO Global supports approval of the DISH Motion (and the related Replacement DIP Facility) because it provides the Debtors with what is critically necessary to shop the company: (a) a floor against which other parties must bid, and (b) time and money to confirm a value-maximizing plan of reorganization or sale of the Debtors’ business or assets for the benefit of all of the Debtors’ stakeholders.”
It added: “The resistance to the DISH proposal by the Senior Noteholders and Sprint is somewhat perplexing, given that the DISH proposal would treat both parties as well, or better, than the Noteholders’ alternative. In opposing the DISH Motion, Sprint notes that the value of the Debtors’ spectrum could be as much as US$2 – $3bn, and that if the Investment Motion is denied, the Reorganized Debtors’ stakeholders intend to fully explore the market for the best possible transaction.”
ICO’s argument follows a statement by the US Bankruptcy judge presiding on the case, Robert Gerber, that the debtors must do all they can to maximise value for the estates by considering any rival buyout offers.
The court hearing to consider both the investment agreement and the DIP financing is scheduled for 1 March 2011.
DISH was previously at loggerheads with the noteholders after it challenged the original bankruptcy reorganisation agreement, under which the senior noteholders would swap their debt for 95% of the equity in the newly emerged DBSD. DISH argued that the first lien secured debt holders should receive more equity rather than the planned PIK notes. The satellite broadcaster holds the entirety of the US$51m first lien debt, having snapped it up at a discount from the pre-petition lenders in July 2009 in what was widely regarded as a ‘loan-to-own’ strategy. However, DISH’s claims were rejected by the US Court of Appeals Second Circuit in December 2010, prompting the company to find an alternative route to take control of DBS
North America.
DBSD is being advised on the restructuring process by Jefferies & Company, Kirkland and Ellis and Davis Wright Tremaine. UBS Securities is advising the principal noteholders. Linklaters and K&L Gates are advising DISH Network and Sprint, respectively, while Curtis, Mallet-Prevost and Colt & Mosle are acting as attorneys for a committee of unsecured creditors.
Neither DBSD nor the Ad Hoc Committee of noteholders would comment on the modified credit facility or the DISH bid.
