DBSD North America’s planned emergence from Chapter 11 bankruptcy protection has stalled after the United States Court of Appeals, Second Circuit, partially reversed the decision of the Bankruptcy Court for the Southern District of New York to approve…
DBSD North America’s planned emergence from Chapter 11 bankruptcy protection has stalled after the United States Court of Appeals, Second Circuit, partially reversed the decision of the Bankruptcy Court for the Southern District of New York to approve the reorganisation plan.
While the appeals court rejected DISH Network’s plea, it upheld Sprint Nextel’s standing to appeal and that the reorganisation plan violated the absolute priority rule, which dictates the order and portion of payments going to the creditors. In this case, Sprint had argued that the violation centres on DBSD’s parent company, ICO Global, receiving 5% of the equity in the restructured company, as well as warrants for an additional 10%, under the bankruptcy plan.
Sprint is the largest of DBSD’s unsecured creditors while DISH owns all of the company’s US$51m first lien secured debt and a portion of around 15% of the second lien debt, which consists of US$750m of convertible senior secured 7.5% notes due 2009. Under the bankruptcy court-approved reorganisation plan, the convertible noteholders would swap their debt for 95% of the equity in the newly emerged DBSD with ICO Global owning the remainder. The first lien creditors would be given a newly issued PIK note to cover their claim.
DISH voted against the plan and sought more equity for the first lien secured debt but was outvoted by the Ad Hoc Committee representing the majority of DBSD noteholders. DISH subsequently appealed but the New York Bankruptcy Court Judge Robert Gerber moved to disregard DISH’s vote arguing that its motivation was not to recover what it could as a creditor but to gain a strategic hold in DBSD. DISH had snapped up all of the first lien-secured debt at a discount from the pre-petition lenders in July 2009 in what was widely regarded as a ‘loan-to-own’ strategy.
In its ruling, the Court of Appeals Second Circuit sided with Judge Gerber stipulating that “the bankruptcy court did not err in designating DISH’s vote, and that, after designating DISH’s vote, the bankruptcy court properly disregarded DISH’s class for voting purposes.”
The decision means that its is now likely that Sprint will continue its appeal against DBSD’s reorganisation plan and the case is expected to return to the New York Bankruptcy Court for further review. The Appeals Court has though yet to produce its written decision, which will provide greater guidance on the timing, process and substance of the issues which need to be addressed by the Bankruptcy Court.
This additional extension of the case is not good news for DBSD given that it had aimed for the reorganisation plan to be consummated on December 1 as its US$28.7m DIP financing is due to mature on December 6 unless amended. However, SatelliteFinance understands that DBSD has worked with its DIP facility lenders to extend the financing while the court process continues.
DBSD is being advised on the restructuring process by Jefferies & Company, Kirkland and Ellis and Davis Wright Tremaine. UBS Securities and Milbank, Tweed, Hadley & McCloy are advising the principal noteholders. Linklaters and K&L Gates are advising DISH Network and Sprint respectively, while Curtis, Mallet-Prevost, Colt & Mosle are acting as attorneys for a committee of unsecured creditors.
