DISH Wireless Files Standalone Plan Ahead of Today’s Case Status Conference; Proposal Eliminates DBS Intercompany Claim Vote, Transfer of EchoStar Claims to EchoStar

Relevant Documents:
Amended DISH Wireless Plan / Redline
Amended DISH Wireless Disclosure Statement / Redline

On Sept. 12, the DISH Wireless debtors filed a standalone amended liquidating plan separate from the jointly-administered DISH DBS debtors. The amended DISH Wireless plan removes two controversial provisions from prior iterations: DISH DBS noteholders would not be allowed to vote a disputed $8.8 billion intercompany claim and the debtors’ potential litigation claims against parent EchoStar would not be sold to EchoStar.

The new plan appears calculated to undermine the official committee of unsecured creditors’ motion to bring estate claims against EchoStar and request for appointment of a chapter 11 trustee or termination of exclusivity. By removing the intercompany claim from the voting calculus and transferring the EchoStar claims to a three-member special governance committee selected by the UCC, the debtors may mollify some of the UCC’s concerns – though the committee does not yet support the latest plan.

The debtors and DISH Wireless special board committee filed a statement on Sept. 13 highlighting the features of the amended plan, including the non-voting status of the intercompany claim and the control of claims against EchoStar by the special governance committee appointed by the UCC.

“The Amended Plan offers a direct path to each of the DISH Wireless Debtors’ unsecured creditors, including (a) those prepared to recover from the FCC Trust at a discount that appropriately reflects the expedited payment of their claims, (b) those willing to wait to recover from the FCC Trust if their claims are allowed, and (c) those who believe that estate causes of action are the best option for recovering on their claims, if allowed, despite the inherent uncertainty of litigation,” the debtors say.

A status conference in the cases is scheduled for today, Monday, Sept. 14, at 2 p.m. ET. According to the debtors’ statement, the UCC and large tower lessors have agreed to a two-week pause of all litigation in the case to negotiate and mediate. The debtors add that they will ask the court to reschedule the Nov. 12 hearing on their objections to the large tower claims until the first available date after Thanksgiving (Nov. 26).

The plan itself seems designed to split large trade creditors (including large tower lessors American Tower, Crown Castle and SBA, which assert more than $8 billion in disputed claims) from smaller trade creditors by offering smaller creditors options for prompt allowance of their claims and payment from the FCC trust. This could complicate the UCC’s opposition to the plan, as the UCC represents both large and small trade creditors.

Tower lessors and other large DISH Wireless general unsecured creditors may object – and ask the UCC, on which they sit, to object – to the plan’s treatment of the $2.4 billion FCC 5G buildout trust. Under the plan, general unsecured creditors must elect to pursue recovery from either the debtors’ estates (including the governance committee-controlled litigation against EchoStar) and their direct claims against EchoStar or the FCC trust, but not both.

Specifically, the disclosure statement explains that absent consent from EchoStar, the plan disbursing agent may not “make a distribution to any Holder of an Allowed FCC Trust-Eligible Claim that has made the FCC Trust Election, except to the extent that such Holder is finally determined not to be eligible to receive a distribution from the FCC Trust on such Claim.” In other words, “an EchoStar Party must agree in writing to a holder recovering from both the Plan and the FCC Trust.”

Creditors would not be required to elect recovery from the FCC trust or recovery from the estates until the later of Feb. 22, 2027 (subject to extension by the FCC trustee) and 45 days after a determination or settlement allowing their claim.

The debtors maintain that if the tower claims are reduced by the lease rejection damages cap in section 502(b)(6) of the Bankruptcy Code, then the trust would be more than sufficient to pay all trade creditors in full, assuming the intercompany claim cannot recover from the trust (an issue currently before the FCC, though the plan provides the intercompany claim would not recover from the trust).

The debtors also assert some trade claims related to the 5G buildout, including the tower lessors’ billions in lease rejection damages claims, should be entirely disallowed under the force majeure provisions in the relevant agreements.

The large tower claimants counter that section 502(b)(6) only applies to claims against the debtors and not the FCC trust, force majeure does not apply and they cannot be forced to choose between recovery from the estates and their direct claims against EchoStar and recovery from the FCC trust, with both sources available to satisfy their claims.

Large DISH Wireless trade creditors will also likely object to the intercompany claim recovering from the debtors’ estates and the proceeds of the estates’ EchoStar claims, which would heavily dilute their recoveries from those sources. According to the debtors’ statement, the special board committee would “have full power and authority to address” the intercompany claim after emergence.

To avoid having their recoveries tied up in these disputes, the plan allows smaller FCC trust-eligible trade claims in Class 2D and larger claimants in Class 2E who elect to reduce their FCC trust-eligible claims to the $100,000 Class 2D threshold to have their claims treated as Class 2D “Type A” convenience class claims. Holders of Type A claims could recover from both a dedicated $200 million portion of the FCC trust, the estates and EchoStar up to a $100,000 cap.

Holders of Class 2D Type A claims and FCC trust-eligible general unsecured claims in Class 2E may also elect a “Quick Pay” option, voluntarily settling their claims at 70% (for Class 2D) or 60% (for Class 2E) of the debtors’ estimated allowed claim amount (which reflects the section 502(b)(6) cap and assumes the debtors’ force majeure defense does not apply), with prompt payment from the FCC trust – providing a strong incentive for smaller trade creditors to accept the plan.

EchoStar and the debtors would jointly request an amendment to the FCC trust agreement “that permits creditors that make the Quick Pay Election to be paid within 10 days of emergence instead of waiting six months or more under the current terms of the FCC Trust,” the debtors emphasize in the Sept. 13 statement.

The debtors provide the following summary of each class’ anticipated recoveries under the plan compared to anticipated recoveries in a chapter 7 liquidation:
 

According to the DS, the projected recovery for Class 2E general unsecured creditors assumes the intercompany claim is allowed and recovers exclusively from the debtors’ estates, and excludes FCC trust recoveries and potential litigation proceeds.

The low figure for estimated Class 2E claims ($9.01 billion) assumes the bulk of trade claims are entirely disallowed due to force majeure, the middle figure ($10.55 billion) assumes the tower lessor claims are reduced by section 502(b)(6) and the high figure ($13.93 billion) assumes neither defense applies, but discounts the trade claims to present value at 10%.

The debtors did not file a motion for approval of the DS or a confirmation timeline. At a hearing on Aug. 19, Judge Christopher M. Lopez offered the debtors a combined confirmation hearing on the then-pending joint DISH DBS/DISH Wireless plan in early December to allow for litigation over the validity of the intercompany claim, the section 502(b)(6)/force majeure issue and the UCC’s standing motion.

The consensual DISH DBS reorganization plan is tentatively set for confirmation on Sept. 29 at 10 a.m. ET.

Amended Plan / Disclosure Statement

Classification and Treatment of Claims and Interests

The DISH Wireless debtors’ amended DS includes the following summary of the classification of claims and interests under the plan, with impairment and voting status:
 

The amended plan provides the following treatment for each class of DISH Wireless claims and interests, the allowed amount of claims in each class and projected recoveries:
 

• Class 2A – Other secured claims: Each holder would receive either payment in full in cash or such other treatment rendering its claim unimpaired.
  • Projected amount: NA
  • Projected recovery: NA
• Class 2B – Other priority claims: Each holder would receive payment in full in cash or such other treatment consistent with section 1129(a)(9) of the Bankruptcy Code.
  • Projected amount: NA
  • Projected recovery: NA
• Class 2C – Prepetition secured loan claims: Paid in full in cash either before or on the effective date.
  • Projected recovery: 100%
• Class 2D – Secured Type A claims: Each holder eligible to recover from the FCC trust would receive, at its option, either payment in full in cash from the $200 million Type A claims reserve pursuant to the FCC trust documents or payment of the “Quick Pay” amount of 70% of the debtors’ estimate of their claims (which reflects the section 502(b)(6) cap and assumes the force majeure defense does not apply) from the FCC trust.
  • Class 2D claims include FCC trust-eligible claims under $100,000 and FCC trust-eligible claims held by Class 2E creditors that elect to reduce their claims to $100,000 and participate in Class 2D. Both groups are deemed to accept the plan and not entitled to vote.
  • The Quick-Pay election requires the creditor to release all direct claims against EchoStar and its affiliates for recovery in excess of $100,000 and requires the creditor to vote to accept the plan.
  • Projected amount: $120.2 million, assuming no Class 2E creditors elect to be treated as Class 2D creditors.
  • Projected recovery: 100%
• Class 2E – DISH Wireless general unsecured claims: Each holder would receive, at its option, either its pro rata share of the debtors’ distributable value and the proceeds of litigation claims (including claims against EchoStar) or treatment as holder of a $100,000 Class 2D claim or recovery from the FCC trust. Each holder of a non-FCC trust claim would receive its pro rata share of the debtors’ distributable value and the proceeds of litigation claims.
  • FCC trust-eligible Class 2E creditors may also elect the “Quick Pay” option for 60% of the debtors’ estimate of their FCC trust-eligible claims (which reflects the section 502(b)(6) cap and assumes the force majeure defense does not apply) from the FCC trust.
  • The Quick-Pay election requires the creditor to release all direct claims against EchoStar and its affiliates and requires the creditor to vote to accept the plan.
  • Creditors who elect to recover from the FCC trust or take the Quick-Pay option must also release their direct claims against EchoStar under the terms of the trust.
  • Class 2E includes the approximately $8.85 billion intercompany claim held by the DWLLC trust for the benefit of DISH DBS noteholders and the more than $8 billion in large tower lessor claims, both of which are disputed.
  • Recoveries on the intercompany claim would follow a waterfall in the plan, and the DISH DBS noteholders would not be entitled to vote “unless otherwise agreed pursuant to the terms of a settlement approved by the Bankruptcy Court, in which case the terms of such Bankruptcy Court-approved settlement shall govern.”
  • Projected amount: $9,011.6 million, $10,548.6 million or $13,925.82 million, depending on the outcome of the debtors’ force majeure defense and section 502(b)(6) defense and assuming the intercompany claim held by the DWLLC trust for DISH DBS noteholders is allowed in full.
  • Projected recovery: 0% from the debtors’ distributable value, excluding FCC trust recoveries and litigation proceeds.
• Class 2F – Reserved. Class 2F was removed from the plan because DISH Network, or DNC, satisfied or discharged its 2027 senior secured notes guaranteed by DISH Wireless.
• Class 2G – DISH Wireless intercompany claims: Each intercompany claim would be either reinstated or set off, settled, distributed, contributed, merged, canceled or released.
  • Projected amount: NA
  • Projected recovery: NA
• Class 2H – Interests in DISH Wireless debtors: Interests would be either reinstated or set off, settled, distributed, contributed, merged, canceled or released.
  • Projected amount: NA
  • Projected recovery: NA

Governance

Potential claims against EchoStar and other related parties would be held by the post-effective date debtors but controlled by a three-member special governance committee selected by the UCC in consultation with the debtors’ existing special independent board committee. A plan supplement would set forth additional terms regarding the governance, procedures and funding of the special governance committee.

All other assets, including other litigation claims, would be vested in the post-effective date debtors and be controlled by the debtors.

Releases and Exculpation

The plan provides releases for each DISH Wireless debtor, each post-effective date DISH Wireless debtor, their professionals, each party that opts in to the plan’s nondebtor releases and each of their related parties.

The plan includes exculpation provisions protecting special board committee members Vikram Jindal and Gerard Uzzi, the UCC and the UCC’s members.

Liquidation Analysis

The DISH Wireless debtors provide the following modified summary comparing recoveries under the plan to recoveries in a hypothetical chapter 7 liquidation: