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USDA, FCC blamed in company’s collapse
Handling of loan draws creditors’ ire
Wireless provider Open Range Communications recently filed for bankruptcy owing U.S. taxpayers more than $70 million from a loan awarded in the waning days of the George W. Bush administration, but now creditors are faulting the Obama administration's handling of the loan.
A committee of unsecured creditors formed in the wake of the company's collapse accuses the U.S. Department of Agriculture of breach of the loan contract, according to newly filed bankruptcy documents.
For instance, the creditors say the USDA's Rural Utilities Service, which awarded the loan, knew Open Range wasn't complying with a USDA requirement that the company pay its construction vendors before seeking reimbursement from federal loan monies.
In addition, around the fall of 2010, the Rural Utilities Service delayed funding the company and "began to refuse to fund construction that was part of the original business plan," the committee said in court papers. "This in turn caused Open Range to have cash flow problems of which the [Rural Utilities Service] was well aware."
The committee made the accusations in a complaint it's seeking to file against the USDA and Federal Communications Commission as part of an ongoing investigation into whether Open Range has "viable" claims against the government.
USDA spokesman Justin DeJong declined to comment on the complaint Wednesday, saying the matter is in litigation and is being handled by the Justice Department.
"We have no additional information to provide at this time," he said.
In October, after the company's bankruptcy, Mr. DeJong said the USDA restructured the Open Range loan last April to "reduce the government's exposure."
The loan was approved for $267 million in March 2008, with closing occurring just days before the Obama administration took office. Out of the $267 million, ultimately $78 million was released by the USDA, with $73.5 million still unpaid. One Equity Partners, the private equity arm of JPMorgan, backed the company with a $100 million commitment.
Under the loan agreement, Open Range's plans called for providing broadband wireless service in more than 500 rural communities in 17 states.
The FCC's involvement in the case stems from its decision in 2010 to suspend the ability of satellite provider Globalstar Inc. to lease spectrum space, citing the company's inability to comply with FCC requirements.
That decision, in turn, affected Open Range, which in 2007 had entered into a deal to receive broadband spectrum space from Globalstar. Though Open Range still had temporary authority to use Globalstar spectrum space, it operated "under continuous threat" that it would lose that ability, said lawyers for the creditors committee.
By December 2010, Open Range warned the Rural Utilities Service that because of its inability to find a permanent source of spectrum, it needed to revise its plan to include a network of broadband to 160 rural communities, down from the more than 500 announced earlier, court papers said.
Last February, filings show, Open Range told USDA officials the company was insolvent because of the Rural Utilities Service's refusal to fund advances on the government loan.
Creditors say Open Range "substantially performed all of its obligations" under the original loan in 2009 and an amended deal in 2011, but federal officials broke their end of the deal by refusing to fund various equipment, services and expenses.
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