Posted By: Nick Miller, Partner, Miller & Van Eaton
Change may be coming to your community. And it won’t be from Washington DC. Instead, it will be from your friendly local cable operator—if the operator is either Charter or Broadstripe.
In a reprise of the Adelphia bankruptcy filed in 2002, two major national cable operators may be headed toward Chapter 11 bankruptcy court protection from creditors. Broadstripe and its affiliates filed for bankruptcy protection on January 2, 2009 in the United States Bankruptcy Court for the District of Delaware, (Case No. 09-10006 (CSS)). Last week, Charter reported it missed an interest payment and had hired counsel to try to renegotiate its debt, signaling that a bankruptcy filing may follow before the end of this week January 23, 2009.
If your city has granted a franchise to either of these cable operators, pay attention. And share this warning with colleagues in neighboring communities that have either Charter or Broadstripe as their cable operator.
The treatment of cable franchises in bankruptcy is neither simple nor straightforward—particularly if your community benefits from a franchise that contains significant in-kind or financial benefits. Most attorneys think the only issue presented by a bankruptcy is whether amounts owed have been paid—classic creditors’ claims. This is an important issue. But there is another and more important issue created by the unique legal character of a cable franchise agreement.
A bankrupt debtor may assign executory contracts of a bankrupt estate even if the contract contains an anti-assignment clause and the counterparty objects to the assignment. See, 11 U.S.C. § 365(f). But this authority is not available when “applicable law” excuses the counterparty from accepting performance from the assignee. You should not assume a bankrupt debtor has a right to assign your cable franchise without your City’s prior, independent consent.
The Adelphia bankruptcy court recognized that a municipal ordinance could be “applicable law”. Further, it drew a distinction between an anti-assignment clause in a franchise agreement, and one found independently in an ordinance of general applicability and effectuated legitimate regulatory concerns for the benefit of the public. The court concluded that where the anti-assignment clause was contained in an ordinance of general applicability, it would not compel Adelphia communities to recognize the assignment of the Adelphia franchises to Comcast or Time Warner. In re Adelphia Communications Corp., 359 B.R. 65 (Bkrtcy.S.D.N.Y., 2007)
This important principle preserves your community’s right to take an independent look at the proposed restructuring or transfer of the franchise to a new operator.
A different problem may confront your community if your state has recently adopted one of the state-wide franchise laws pushed by at&t over the last few years. There may be no transfer of a franchise involved if the purchaser of the assets in bankruptcy already holds a state-wide franchise in its own right. In that case, your strategy for protecting your community may devolve to assert liens have attached to the existing facilities in the right-of-way, or other legal arguments tied to your right-of-way property interest.
Obviously your community’s specific rights will vary depending on the language of your franchise and local ordinances. But stay alert, and plan both to file a creditor’s claim to preserve your financial claims and to file an objection to preserve your authority to reject a franchise transfer if you are not satisfied by the promises of the new operator.