DISH Debtors Get First Day Relief, But Court Delays Wireless Plan Solicitation, Bidding Procedures Motions Over ‘Due Process’ Concerns

Relevant Document:
Agenda

At today’s first day hearing in the DISH DBS and DISH Wireless chapter 11 cases, Judge Christopher Lopez said he was not prepared to conditionally approve the disclosure statement for the Wireless debtors and send the plan to creditors for voting as the debtors asked.

Instead, Judge Lopez said he will consider the Wireless debtors’ solicitation procedures, bidding procedures for an all-asset sale, lease rejection procedures and bar date motion at a later hearing – July 8 at the earliest, the judge noted. He directed the parties to confer on a hearing date.

Judge Lopez adjourned the four Wireless motions in the face of objections from tower lessors and the U.S. Trustee, who argued that the debtors’ prepack cases are only truly prepackaged for the DBS entities. This is in contrast to the Wireless cases, they asserted, which are premised on resolving thorny issues – such as the treatment of vendors asserting billions in claims related to DISH Wireless’ abandoned 5G network buildout – in the debtors’ favor. Debtors’ counsel, however, argued that the cases are prepackaged for all debtor entities.

The court granted all of the debtors’ other first day motions in the absence of any opposition. Judge Lopez also set a hearing on July 23 at 10 a.m. ET to consider Wireless’ proposed $85 million DIP financing from parent EchoStar and final approval of any interim relief.

Octus’ live updates from today’s hearing are HERE.

The debtors filed on June 30 with a prepackaged plan supported by holders of more than 88% of DISH DBS notes and $8.8 billion in intercompany claims against DISH Wireless. Under the plan, DBS (operator of pay-TV services DISH Network and Sling TV) seeks to refinance approximately $11.5 billion in funded debt under a March 19 restructuring support agreement, while DISH Wireless (operator of the Boost Mobile network) would be sold, with EchoStar as stalking horse.

The largest DISH Wireless vendor claimants – tower lessors American Tower and Crown Castle – have long litigated with Wireless over whether the company’s obligations under the leases were excused by force majeure provisions when the government brought regulatory proceedings to take away the company’s 5G wireless spectrum, which is now being sold to AT&T and SpaceX.

Debtors’ counsel from confirmed today that under the plan, the debtors intend to zero out the tower lessors’ claims on force majeure grounds, and if that fails, to cap the claims at 15% of future lease payments under section 502(b)(6) of the Bankruptcy Code. Counsel for Crown Castle and American Tower, in turn, asserted claims of $3.5 billion and $2 billion, respectively.

Ultimately, Judge Lopez said he was not prepared to take up the four Wireless motions today. “Today is, for me, entirely about due process,” Judge Lopez said, saying that he does not want to set up a contested confirmation process on day one and Wireless creditors are “entitled to a little bit more notice.”

The judge said it is “undisputed” that there is a joint prepackaged plan for DBS and Wireless in the sense that votes were solicited before the debtors filed, but he suggested the plans for the two silos are different in substance. DBS has a “traditional prepack” with a voting bloc sufficient to confirm the plan after months of negotiations and trade creditors would be unimpaired, Judge Lopez continued, although he also suggested he is not sure what “prepack” means nowadays.

The Wireless plan is “materially different,” the judge said, with a sale process, bar date motion and lease rejection procedures that could affect billions of dollars in claims. Judge Lopez suggested that not every prepack has to look like DBS, but for Wireless he was being asked to approve solicitation procedures and estimate claims at $1 on less than 24 hours’ notice.

When things get complicated we should “hug the rules,” Judge Lopez said, adding that he doesn’t think he should come up with a contested confirmation schedule for Wireless on the first day.

As noted above, the judge told the parties that the earliest he can take up the solicitation procedures motion is July 8. Debtors’ counsel Tom Lauria of White & Case proposed that the debtors send out a notice for a July 8 hearing, subject to parties’ rights to seek an adjournment. Again, the court told the parties to confer.

Judge Lopez made his bench ruling after hearing oral arguments.

Brian Hermann of Paul Weiss, counsel for Crown Castle – which filed an objection shortly before the hearing – insisted the DBS and Wireless cases are “two very different cases” that should be handled differently and shouldn’t be “stapled together.” Crown Castle did not oppose substantive first day relief for the DBS debtors, just for the Wireless entities, he explained.

Hermann emphasized that the DBS debtors would be reorganized under the plan, while Wireless would be liquidated and its GUCs would be “heavily” impaired. He asserted that Crown Castle’s $3.5 billion unsecured claim makes it Wireless’ largest unsecured creditor and that the claim is superior to the $8.86 billion intercompany claim owed by DWLLC to DNC, held by the DWLLC trust for the benefit of DBS noteholders.

The RSA did not originally contemplate Wireless filing, Hermann pointed out, and Wireless joined the RSA just two days ago. “Judge, when have you ever seen a prepack that would pay billions of claims cents on the dollar?” Hermann asked, answering himself: “Never.”

On the intercompany claim, Hermann asserted that it is “a contrived mechanism to take an insider claim and give it the appearance of a non-insider claim – and insider claims cannot carry an impaired class” to satisfy chapter 11 plan voting requirements.

Hermann also suggested the 2024 transfer of three million pay-TV subscribers to an unrestricted subsidiary was “concealed” until yesterday when it was revealed in the DS. That was an asset of Wireless transferred to a nondebtor, Hermann said, hinting at fraudulent transfer claims.

Dan Forman of Ropes and Gray, counsel for lessor American Tower, said American Tower is owed $2 billion under its terminated agreement with Wireless and also sued Wireless over the force majeure issue. He also insisted that the Wireless plan is not truly “prepackaged” and that the intercompany claim cannot be counted because it is an insider claim.

As for the proposed sale of Wireless’ assets to EchoStar, Forman asserted the transaction is a “classic catch and kill” aimed at eliminating fraud, alter ego and similar claims held by Wireless against EchoStar. He said those claims should be investigated by an official committee of unsecured creditors.

Ivan Gold of Allen Matkins, counsel for a group of Wireless creditors, agreed that “these are two cases crammed together that need to be separated,” with two different timelines.

Counsel for the UST also expressed “concerns about the due process parties are getting in these cases.” She noted that the UST is soliciting creditors to serve on a UCC.

Debtors’ counsel Charles Koster of White & Case countered that the disputes raised by the Wireless creditors had nothing to do with the motions before the court. He said the plan solicitation procedures gave the creditors ample time to prosecute a Rule 3018 motion to allow their claims for voting and object to the plan ahead of a proposed Aug. 17 confirmation hearing.

Koster admitted the proposed confirmation timeline was fast – typical for prepackaged cases – but he said the company seeks to exit quickly to enhance recoveries, mitigate risks to the pay-TV business at DBS from a bankruptcy overhang and facilitate Wireless creditors filing claims against the FCC trust. In response to Judge Lopez’s questions, Koster said the number of disputed contract claims at Wireless is about 20.

Early in the hearing, Dennis Dunne of Milbank, counsel for the RSA ad hoc noteholder group, affirmed his client’s support for the plan and the relief sought today.

As noted above, Judge Lopez ultimately said he will consider the four Wireless motions at a later hearing and otherwise granted the debtors’ requested first day relief.