On October 16, 2012, the United States Tenth Circuit Court of Appeals overturned decisions of the United States Bankruptcy Court for the District of Colorado and the United States District Court for the District of Colorado that had cast doubt as to whether a lender could enforce a security interest in the proceeds from the sale of a borrower’s FCC broadcast license. The case, Valley Bank and Trust Company v. Spectrum Scan, LLC (In re Tracy Broadcasting Corp.), 2012 U.S. App. LEXIS 21505 (10th Cir. Colo. Oct. 16, 2012), is an important and beneficial one for the broadcast community as it overturned two troublesome decisions that called into question a position long supported by the FCC and most courts. That position is that while a broadcast license does not confer a property right, and a license, as distinguished from a station’s physical assets, is not subject to any form of security interest, the lender may obtain a security interest in proceeds from the station’s sale. This decision should be welcomed by the broadcasting and lending communities alike.

In In re Tracy Broadcasting Corp., a lender made a pre-petition loan to an FM radio station operator, secured by, among other things, the proceeds of the borrower’s FCC license. The borrower subsequently filed for bankruptcy protection and the bankruptcy court was asked to determine whether the lender’s security interest in the proceeds of the license was enforceable. The bankruptcy court concluded that the lender did not have a sufficient property interest in the license to enforce a security interest and the district court affirmed that decision in its own written opinion. The decisions of the bankruptcy court and district court directly contradicted past bankruptcy court decisions and FCC rulings that had upheld the right of secured lenders to take security interests in FCC license proceeds and been relied upon by the broadcasting lender community for many years.

The Tenth Circuit Court of Appeals rejected the conclusions of the bankruptcy court and district court, holding instead that a security interest in the right to receive proceeds from the transfer of an FCC license was valid and enforceable. The Tenth Circuit’s decision comes on the heels of a ruling issued by the Bankruptcy Court for the Southern District of New York in the case of Sprint Nextel Corp. v. U.S. Bank Nat'l Ass'n (In re Terrestar Networks, Inc.), 457 B.R. 254 (Bankr. S.D.N.Y. 2011) which came to a similar conclusion.