Protecting Venture Capital Client from Bankruptcy Fallout
A team of Holland & Knight lawyers collaborated from different offices and varying practice areas – including financial services; the Federal Communications Commission (FCC); bankruptcy, restructuring and creditors' rights; Committee on Foreign Investment in the United States (CFIUS) and industrial security – to provide comprehensive representation for a technology-focused company on a complicated matter involving a debt to a company that filed for bankruptcy protection.
The Holland & Knight attorneys advised the life sciences and technology venture lending partner in connection with a 2018 senior secured term loan made to a space communications company whose principal asset was a space station (satellite) spectrum license granted by the FCC. FCC licenses are general intangibles under the Uniform Commercial Code (UCC). Perfection of a security interest in a general intangible under the UCC is customarily accomplished through filing a UCC financing statement. However, the Communications Act of 1934 prohibits the granting of security in an FCC license and only permits the granting of security in the proceeds of such license.
As a result, Holland & Knight assisted the Lender and Secured Creditor in structuring the transaction to accommodate the UCC and Communications Act requirements. At the same time, the Holland & Knight team ring-fenced the license to protect its value for the benefit of the Secured Creditor and to avoid bankruptcy risk. The structuring became particularly important when the borrower defaulted in early 2019.
Notwithstanding forbearance and unsuccessful restructuring efforts with the borrower throughout 2019, Holland & Knight assisted the Secured Creditor in exercising secured creditor remedies, including the negotiation and execution of a definitive agreement for the purchase and sale of the Secured Creditor's collateral with EOS Defense Systems USA Inc., a wholly-owned U.S. subsidiary of Electro Optic Systems Holdings Limited (ASX: EOS) in December 2019. The purchase by EOS was contingent upon, among other things, obtaining governmental review and approval from the FCC and CFIUS. FCC approval was granted in March 2020 and CFIUS approval was granted in May 2020, with the closing of the transaction occurring immediately thereafter.