Spanish Broadcasting System suspends trading of series B preferreds

By Marisa Wong

Morgantown, W.Va., March 26 – Spanish Broadcasting System, Inc. requested that the Depository Trust Co. suspend trading of its 10¾% series B cumulative exchangeable redeemable preferred stock, according to a news release.

The company announced on Monday that some transfers of its series B preferreds may, when attempted, have had no effect as a legal matter and were void and remain void currently.

As a result, there are genuine questions regarding valid ownership, or good title, to these shares, the company said.

The company said it is requesting suspension of trading in the series B preferreds pending resolution of who validly owns these shares and is considering possible additional steps to protect the lawful owners of its series B preferreds and innocent parties from ineffective and possibly fraudulent transfers of those shares.

On Nov. 2 some purported holders of the series B preferreds filed a lawsuit against the company in the Delaware Court of Chancery, claiming to represent about 94% of the outstanding shares of the series B preferreds and alleging violations by the company of the Certificate of Designations under which the preferred stock was issued, which the company has “vigorously” denied.

As the company has previously disclosed, if the facts alleged in the complaint are correct, which the company has not conceded, then the collective ownership of the outstanding series B preferreds by non-U.S. entities would exceed 63% of the outstanding preferreds.

This ownership would result in a violation of Section 310(b)(4) of the Communications Act of 1934, which limits to 25% the indirect foreign ownership of Federal Communications Commission broadcast licensees and would also violate Article X of the company’s charter, which restricts foreign ownership in the company to not more than 25% of the aggregate number of shares of its capital stock outstanding in any class or series entitled to vote.

In addition, it appears that some of these transactions, if given effect, would have required the prior approval of the FCC of foreign ownership in excess of the 25% limit.

On Nov. 28, the company requested by letter to these purported holders and their counsel the information required from them on an urgent basis so the company could comply with its statutory obligations and advise the FCC regarding the extent of its indirect foreign ownership holdings and so it could definitively determine the ownership of its series B preferreds.

The company also filed on Nov. 28 an 8-K filing with the Securities and Exchange Commission summarizing the information request and the potential consequences of having excessive foreign ownership of the series B preferreds.

In addition, the company filed a petition for a declaratory ruling with the FCC on Dec. 4 seeking FCC approval to temporarily exceed the 25% indirect foreign ownership limit while the company takes steps to reach compliance.

The FCC responded, in part, by directing that additional information must be disclosed to the FCC regarding the identities of the purported holders of the series B preferreds.

To date, these purported series B preferred holders have not provided all of the information requested. The FCC has granted the company an extension to April 27 to provide that required information.

Because the company has not received the necessary information from the purported holders, it cannot at present identify the extent of its foreign ownership or determine which investors have valid title to the series B preferreds and which do not.

The Spanish language broadcaster is based in Miami.

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