For winning incentive auction bidders who are party to a pre-auction channel sharing agreement (or their hosts), it’s time for you and your attorney to re-read the agreement and begin a dialogue with your channel sharing partner as to implementation. On the other hand, if you are not party to a pre-auction channel sharing agreement, but are interested in channel sharing, the FCC permits post-auction channel sharing, so you can start making calls to see what opportunities may be available in your market. In addition, some channel sharing agreements may still be terminable (perhaps until the release of the Closing and Reassignment Public Notice) – in these cases you may want to contact other stations in your market and assess your options to determine if perhaps a more favorable channel sharing opportunity is available. With the quiet period ending a few days ago, station owners are now actively doing their due diligence to canvass the market and see what circumstances exist post-auction.
As a refresher, under a channel sharing agreement the sharee party (who was a winning bidder in the auction) retains its broadcast license and is granted the right to use a portion of the capacity of the 6 MHz channel of the sharer/host station–most likely in exchange for a share of auction proceeds or a fixed fee arrangement. The percentage allocation of the host station’s capacity is negotiated by the parties and does not have to be 50/50. Some channel sharing agreements also permit one or both parties to enter into sub-sharing agreements to further divide up the available bandwidth among stations in the market.
For those implementing channel sharing agreements, there are a number of business issues to consider. All parties will likely want to amend and restate their channel sharing agreements to delete reserve prices and other auction provisions so that reserve pricing information doesn’t end up in a station’s public file. Certain other updates may be needed due to passage of time and changed circumstances over the past year (for example, if a multi-party agreement was signed up, but only some of the parties are going forward with the sharing).
Some channel sharing agreements provide for specified notices or actions to be taken within a few days after the FCC’s issuance of the Closing and Reassignment Public Notice. Broadcasters should review their existing agreements now with their attorneys to ensure that no contractual deadlines are missed.
Sharees should review their tower leases to develop a plan for termination. In addition, both sharers and sharees should review the host’s tower lease, including with respect to sublease rights, providing access to the sharee, and whether or not the landlord has the right to renegotiate rent if multiple stations are now using the same space.
Some channel sharing agreements require parties to enter into agreements with escrow agents or qualified intermediaries (“QIs”) for receipt of auction proceeds in a 1031 like-kind exchange. If you have not already reached out to QIs or escrow agents, now is the time to start down that path since these agreements will need to be in place when auction proceeds are disbursed. Furthermore, if you have not already done so, you may want to consult with a tax advisor to structure the receipt of proceeds in a manner that does not create unexpected adverse tax consequences.
Even if parties did not previously contemplate forming a special purpose entity to hold shared assets, it may be worth reconsidering now if there is leverage to do so. Forming a special purpose entity likely provides the sharee with a better position in the event of a host bankruptcy since it is unlikely that a bankruptcy court would deprive a non-debtor of ownership of assets. If a special purpose entity is not formed, it may be worth trying to negotiate certain provisions into the channel sharing agreement in an attempt to limit a sharee’s exposure in the event of host bankruptcy. During the term of a channel sharing agreement, it’s likely wise for sharees to monitor the financial health of their hosts.
Finally, prior to sharing, sharees should conduct lien searches on their hosts to understand what liens exist on the host’s assets. Any shared assets should be free and clear of liens, so parties may need to obtain partial releases from their lenders.
Wiley Rein is prepared to assist television stations with all of their post-auction needs. You can view a list of our post-auction services here.