DBSD Bankruptcy Plan Partly Reversed by Court

DBSD North America Inc., a satellite- communications company, lost part of an appeals-court fight over its bankruptcy reorganization plan, which DISH Network Corp. and Sprint Nextel Corp. fought to overturn.

The U.S. Court of Appeals in New York agreed with Sprint that the DBSD plan violates bankruptcy law, according to an order yesterday. The judges didn’t give reasons for the decision and said an opinion “will follow in due course.”

DBSD, based in Reston, Virginia, filed for bankruptcy in May 2009 with about $800 million in secured debt, according to court papers filed last year in the bankruptcy case. The bankruptcy plan calls for noteholders to receive most of the stock of the company.

Christopher Doherty, DBSD spokesman, declined to comment. The company sought permission from the appeals court on Dec. 1 to implement the plan because the scheduled termination date of its bankruptcy financing was yesterday, according to a court filing. DBSD said it has “mere weeks to survive before running out of cash.”

In its order, the appeals court said it was reversing part of a district court decision approving the plan and affirming part of it.

The appeals court ruled against DISH, saying its vote against the DBSD bankruptcy plan was properly disqualified. The court said the case should be sent back to U.S. Bankruptcy Court in Manhattan for further proceedings.

‘Very Bad’

The Loan Syndications and Trading Association, which supported DISH’s appeal, was “disappointed” with the decision, Elliot Ganz, the group’s general counsel, said in a phone interview.

The LSTA, which advocates for the interests of distressed- debt investors that participate in bankruptcy cases, argued that lower-court rulings approving the DBSD plan would punish creditors such as DISH that acquire claims in a bankruptcy with plans for a strategic transaction with a company.

The opinion’s impact won’t be known until it is released, Ganz said.

“If they announce a broad principle like having a strategic motive is per se bad faith that would be very bad,” he said. “We’re hopeful this opinion is drafted very narrowly.”

Dish Disqualified

In approving the plan last year, U.S. Bankruptcy Judge Robert Gerber disqualified DISH’s vote against the proposal, saying the company’s motivation in the case wasn’t to maximize its recovery as a creditor. Instead, it was seeking to block DBSD’s plan and further its strategic interest in the company.

DISH sought to propose a rival bankruptcy plan for DBSD and had a “long-standing interest” in acquiring the company, DBSD said in court papers.

Paul Hessler, an attorney for DISH, didn’t return a phone call seeking comment.

Sprint said the reorganization plan violates the bankruptcy law’s so-called absolute priority rule. DBSD’s parent, ICO Global Communications (Holdings) Ltd., would receive a distribution under the plan over the opposition of unsecured creditors that would see a “fraction” of their claims paid, according to a Sprint filing with the appeals court. Sprint said in court papers it is owed $211 million.

Eric Moser, an attorney for Sprint, didn’t return a phone call seeking comment.

The bankruptcy case is In re DBSD North America Inc., 09- 13061, U.S. Bankruptcy Court, Southern District of New York (Manhattan); the appeals court cases are Dish Network Corp. v. DBSD North America Inc., 10-1175, and Sprint Nextel Corp. v. DBSD North America Inc., 10-1352, U.S. Court of Appeals for the 2nd Circuit.

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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