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Lawyer Sees First Amendment Problem In Financial Woes

Posted at 7:28 p.m. ET

Communications attorney Matthew Leibowitz (Leibowtiz & Associates, Miami) has written the FCC warning of what he says is a "First Amendment Perfect Storm" that the FCC must take steps to avoid.

Leibowtiz says in his letter, a copy of which was also sent to B&C, that the storm will be created when the decline of newspapers is combined with potential bank/government ownership or control of TV and radio stations.

He wants the FCC to open an inquiry into how to protect the First Amendment by protecting banks interest in broadcast properties and the liquidity of those stations. If you don't protect that bank interest, he says, "there will never be another bank loan to broadcasters." And the government could wind up controlling more than a station's license.

"We now have a potential seismic restructuring of broadcast ownership he warns, "with bankers acquiring significant interest in numerous broadcast stations. The concurrent de facto nationalization of these lenders may, in turn, lead to significant de facto government onwership of the commercial broadcast media," he says.

Government control could be the fallout of the financial crisis, he says, which has banks increasingly seeking debt-for-equity swaps from broadcasters attempting to avoid defaulting on loans.

By some estimates, Leibowitz says, 80% to 90% of broadcast companies will have to either restructure or default.

Is consolidation to blame for any of this? "Certainly consolidation accelerated it," says Leibowitz. But he says that it is "off the mark" to say this is one of the "evils" of consolidation. Given this level of drop in values, he says, it would have happened anyway.

But he also says that a "good portion" of the stations are not in default in terms of not being able to pay, but they are in default of covenants. "In bank loans," he says, "often they will have ratios of revenues vs. the amount of debt and value to debt. Those covenants in the main are being breached. Legally that is a default."

Broadcasters modeled their borrowing power based on certain assumptions about advertising dollars, he points out. "As the recession hits, you run afoul of those marks that you have set for your bankers."

He says normally, even highly leveraged stations had relatively steady advertising. And there was always another bank willing to lend, he says. "You could refinance. But today, there is no financing. That is the tsunami."  

Leibowitz told B&C he was not filing on behalf of his clients, though he does represent TV and radio stations. "This is just my observation and my concern. Talking to my friends at the commission, I don't think they have focused on, in fact I know they haven't."

He said instead he was looking to send a wakeup call to the FCC on the issue. "Everybody is focused on DTV, but no one seems to be aware of or focused on what's going on."