By Robert E. Hayes

Many lenders are located in markets served by local radio stations and, less frequently, locally-owned television stations.  When approached by such a license holder for funding, the lender often faces a difficult decision, as the hard assets and cash flow of the proposed borrower may be rather modest, while the rights granted under the FCC license may have significant value.  Unfortunately, at least at first blush, federal law appears to invalidate any effort to take a security interest in the license. In that regard, § 47 U.S.C. 310(d) provides as that the holder of a construction permit or station license issued by the FCC may not make an assignment of transfer of the permit, license, or any rights thereunder without obtaining prior FCC approval.

In light of the federal statute, can a lender nonetheless gain a secured position of value when considering a loan to an FCC licensee?  A relatively recent decision of the United States Court of Appeals for the 10th Circuit In Re Tracy Broadcasting Corp., 696 F.3rd 1051 (10th Circuit 2012) suggests a lender may do so.  In that case, the Court distinguished between having a security interest in the license itself, and having a security interest in the proceeds of a sale of the license.  The Court acknowledged that a lender could not take a security interest in the license itself, but, since the federal statute does not strictly prohibit security interests in the proceeds of sale, a lender could obtain an enforceable security interest in proceeds of a future sale of the license as a general intangible.  In the Tracy Broadcasting case, the Court determined that a lender’s pre-bankruptcy perfected security interest in proceeds of sale would defeat a bankruptcy trustee’s  claim that the security interest was invalid and that all proceeds of the sale of the license of the debtor in this case should go to unsecured creditors.

The decision is seen as consistent with Section 9-408 of the Uniform Commercial Code (SDCL 57A-9-408), which was intended to override state laws which might prohibit the creation, attachment and perfection of security interests in state-issued licenses.  The 10th Circuit specifically stated that its decision was intended to recognize the public interest which the federal statute seeks to protect while also recognizing that there is economic value or benefit which can be the subject of a security interest without endangering or impairing public interest.

Although the decision is a positive development for lenders contemplating loans to the holders of FCC licenses, they still need to be aware of the limitation of the federal statute.  Since only the proceeds of sale can be subject to the security interest, a lender would not be entitled to the other collection rights normally enjoyed with respect to more ordinary types of collateral, such as repossession and sale.  For more information, contact Bob Hayes at 605-357-1260 or [email protected].

Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit