What type of security interest can a lender or investor take in an FCC license. The answer is none. The FCC license cannot legally be pledged to the lender as collateral. There ways, however, to structure a loan in such a way that will give lenders or investors sufficient security.
1
Proceeds
Under the Communications Act, any direct pledge of an FCC license without the FCC’s consent is considered to be an unauthorized transfer of control. While a lender cannot take a security interest directly in the FCC license it is legal for the lender to legally obtain and enforce a security interest in the proceeds of the sale of a station’s FCC license. In the words of the Ninth Circuit court: “No such public interest is implicated, however, by a security interest in the proceeds of licenses, which does not grant the creditor any power or control over the license or the segment of the broadcast spectrum it represents.” This means that lenders can get at the next best thing to the station’s license—the money that results from a sale of such license.
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Equity Pledges
We have advised on deals where lenders have required individual and corporate borrowers to place their tangible assets and their FCC licenses into separate companies. This allows the borrower to pledge to the lender the stock or membership interest of the licensee company. Upon default, this allows the lender to foreclose on the borrower’s tangible assets without FCC approval. And then, the lender can, subject to prior FCC approval, foreclose on the stock and take control of the license.
Lenders then have two ways to secure their interest in addition to taking a security interest directly in the non-FCC license assets: A lender can legally take interest in the proceeds of the sale of the FCC license; and if the FCC license is held in a license sub, foreclose on the stock and take control of the license (subject to the prior approval of the FCC, of course).
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