On October 5, 2011, Open Range Communications ("Open Range"), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware. According to the Declaration of Open Range’s CFO (the "Declaration" or "Decl."), the company sought bankruptcy protection in order to either sell its assets as a going concern or wind down operations through a liquidation. Decl. at *10. This post will look at Open Range’s business and the events leading to its bankruptcy.
Open Range describes itself as a wireless network provider to "unserved and underserved rural Americans." Decl. at *2. Based in Greenwood Village, Colorado, Open Range began operations in 2004. By 2009, Open Range had secured a $267 million loan with the U.S. Department of Agriculture’s Rural Utilities Services program. Open Range’s loan from the Department of Agriculture helped the company fund its buildout of its wireless broadband network. Id.
In order to gain broadband spectrum, in 2007 Open Range entered into a Spectrum Manager Lease agreement with GlobalStar Licensee LLC (the "GlobalStar Agreement" or "Agreement"). Through the Agreement, Open Range sought to receive enough broadband spectrum to reach up to 50 million customers. Decl. at *3.
Events Leading to Bankruptcy
Aside from the from USDA loan, Open Range also received an equity commitment from One Equity Partners III, L.P. ("OEP") for $100 million. Open Range launched in its first market in 2009 and by June 2010 the company was operating in 36 markets. Soon after the launch of operations, Open Range encountered operational setbacks which it contends were outside its control. Decl. at *3. GlobalStar began experiencing difficulties retaining the broadband spectrum it agreed to provide under its Agreement with Open Range. According to Open Range, GlobalStar could not meet certain FCC conditions on the use of the spectrum. Id.
In September of 2010, the FCC suspended Globalstar’s authority to lease spectrum to Open Range. Following the GlobalStar suspension, the FCC allowed Open Range to use the GlobalStar spectrum for 60 days while Open Range sought "alternative spectrum arrangements." Decl. at *4. The GlobalStar suspension caused uncertainty among GlobalStar’s vendors and suppliers. Some suppliers, following the suspension, stopped work on Open Range’s construction projects. id.
Starting in June of 2010, Open Range’s funding under the USDA loan became "sporadic." The company receives funding under the loan either through advances against pre-approved contracts or reimbursement of funds spent by the Open Range. Decl. at *5. Open Range contends that in the last 7 months, it has received only $4.6 million in reimbursement for operating expenses. Approximately $15 million remains outstanding and needs to be submitted to the Department of Agriculture. Id.
Prior to filing for bankruptcy, Open Range set earnings and revenue targets which it hoped to achieve through improvements in its systems and costs reductions. Unable to achieve its targets, the company hired financial consultants to assist with its restructuring. In October, Open Range let go over 120 employees, reducing its employee base from 174 to 48. In order to achieve its objectives in bankruptcy, the company believes it will need $6 million in funding. On October 5, 2011, Open Range received $1 million in funding from OEP. The U.S. Department of Labor has informed Open Range that it will not advance any additional funds. Decl. at 9-10.
The Open Range bankruptcy is before the Honorable Kevin J. Carey under case no. 11-13188 (KJC). Judge Carey previously served as Chief Judge of the Delaware Bankruptcy Court. Open Range is represented by the law firm Cole, Schotz, Miesel, Forman & Leonard. A copy of Open Range’s bankruptcy petition is available here for review. Further, a copy of the Declaration of Open Range’s CFO is available here for review.
For those readers who are generally unfamiliar with the bankruptcy process, below are some of my prior posts that address common issues that arise in Delaware bankruptcy proceedings:
Jason Cornell is a bankruptcy attorney with the law firm Fox Rothschild LLP. Jason practices before the United States Bankruptcy Courts for the District of Delaware and District of South Florida. You can reach Jason at 561 804 4415, or email@example.com