Lien on Me: The Survival of Security Interests in Revenues from the Sale of an FCC License

IntroductionThe telecommunications industry is responsible for transmission of a large portion of information between parties in the United States.1 Given the importance of communication and the reliance on technology in today's society, the telecommunications industry is a vital component of the world's economy.2 Although information can be transmitted through wires and cables, a significant amount of telecommunications services are offered wirelessly over a spectrum of radio frequencies (the "spectrum") ,3Like all businesses, entities within the telecommunications industry often need substantial financing to operate.4 The high cost of Federal Communications Commission (FCC) licenses makes this particularly true for entities looking to enter the telecommunications market.5 Potential entrants must have a license to operate on the spectrum, but few have the capital needed to place a successful bid at auction.6 Any lender willing to finance a telecommunications provider will require the provider to offer collateral to secure the loan and ensure repayment.7 Often, creditors seek the debtor's right to receive proceeds from the future sale of the debtor's FCC license ("sale revenues") as collateral.8The enforceability implications of this security interest are unclear, however, when the sale of the license occurs after a provider has filed bankruptcy.9 For a security interest in an item to survive bankruptcy, the item must have been subject to a valid pre-petition security interest, or be proceeds of collateral that was subject to a valid pre-petition security interest.10 A valid security interest is created when the interest at- taches; thus, for a security interest to survive bankruptcy, all requirements for attachment must be satisfied pre-petition.11 A sale of an FCC license cannot occur until two conditions are met.12 This raises an important question: if neither of the two conditions of sale have been satisfied by the time the debtor files for bankruptcy, does the debtor have "rights in the collateral" such that the security interest attaches?13 The question has created a controversy; some believe that a debtor has rights as soon as the debtor acquires the license, whereas others state that the debtor cannot have rights when neither condition of sale has occurred because the sale of the license is not adequately forthcoming.14This Note analyzes the current dispute over the question of when a debtor acquires the right to receive revenues from the sale of its FCC license, argues that the debtor's right comes into existence at the time it acquires the license, and goes beyond the traditional policy argument that courts have relied on to provide a legal basis for that conclusion.15 Part I provides an overview of the process through which creditors obtain a security interest in sale revenues of an FCC license, as well as the bankruptcy implications of such a lien.16 Part II highlights the debate regarding when the debtor acquires the right to receive sale revenues by discussing the outcomes of In re TerreStar Networks, Inc. and In re Tracy Broadcasting Corp.17 Part III outlines three situations outside the telecommunications context in which a debtor's right to receive future funds has been found to exist before the contingencies required to receive those funds have occurred; specifically, in pension plan refunds, contingency fee agreements, and sale revenues from a liquor license.18 Finally, Part IV argues that the FCC licensee's right to receive future sale revenues similarly exists before the sale revenues themselves doupon the acquisition of the FCC license-based on the similar characteristics of the previously analyzed industries and the broadcasting market.19 It is not the debtor's right to receive revenues that is contingent, but the value of that right; thus, a security interest in the proceeds from the future sale of a debtor's FCC license survives bankruptcy.20I. The Role of an FCC License in a Secured TransactionA. …