SBS 375

Spanish Broadcasting System alerted the Federal Communications Commission in March that it planned to seek approval to increase its level of foreign ownership. It has now followed through, filing a petition with the FCC that seeks a waiver to the 25% foreign-ownership benchmark currently allowed. The request is tied to a proposed stock sale that, if allowed, would see a group of preferred shareholders convert their stock into publicly traded common shares. The move was part of a February settlement reached between the company and the preferred shareholders, ending a legal battle that began in November 2017.

In its petition, SBS says some of the investment funds that are part of the settlement are based outside the U.S. or have interest holders who are not U.S. citizens or U.S.-organized business entities. Based on the number of shares it plans to issue, the foreign ownership ceiling would be exceeded. It wants clearance to go as high as 49.99%.

Among the preferred shareholders that would take on common stock ownership is West Face Long Term Opportunities Global Master, a Cayman Islands entity, which would hold 7.45% of SBS’s equity. There is also the Stornoway Recovery Fund, which is based in Canada. It would hold slightly more than 0.5% of SBS’s equity, but the firm seeks clearance to increase its equity in SBS to 5% or more.

SBS currently has only one foreign investor. David Tomasello-led Bluestone Financial, a British Virgin Islands exempt company holds 5.26% of the current equity of SBS. Once new shares are issued, Bluestone’s interest will fall to 4.42%. SBS has a handful of other foreign shareholders, all with well below five percent equity or voting interests that, together with Bluestone, add up to a current aggregate foreign equity interest of about 11.3%. If the FCC clears its request to raise the foreign ownership level, it would rise to 25.5%.

Overall, the common stock owners of SBS hold a combined 20.4% of the voting power of the company. CEO Raúl Alarcón has more than 2.3 million shares of Class B shares – each has ten votes – giving him 79.7% of the total voting power.

In its petition, SBS points out that soliciting new foreign investment was not the primary objective that resulted in its request, but rather settling a long-standing legal dispute with a mix of cash and common stock. “The proposed issuance of new SBS shares also raises no national security, trade policy or law enforcement concerns,” it says, noting Alarcón will continue to control SBS. It also says that the investment funds involved are “well-established” investment management companies, some of which are Canadian companies, and some of which are U.S. entities investing in SBS through non-U.S.-based funds. “These are the kinds of investors that the Commission has typically found appropriate in prior declaratory ruling proceedings, and for which specific approval has been granted,” it says. SBS says it could also encourage other investments in broadcasting by overseas entities.

SBS announced in February that it had agreed to a recapitalization of the company. The move allowed it to resolve a long-running legal battle with its preferred stockholders tied to allegations SBS failed to pay them $72.6 million in required dividends. As part of the agreement, the preferred shareholders will see their stock converted into publicly traded common shares. SBS earlier said that it would issue Class A common shares only to settling counterparties who certify that they are 100% U.S. owned.

It is not the first time SBS has gone to the Commission seeking a waiver to the 25% foreign ownership limit. During its standoff with the preferred shareholders the company had sought a waiver in December 2017 after it said it was unable to determine the background of owners of its Series B Preferred Shares as part of the long-running dispute. Ultimately, the Media Bureau decided last year to leave the fight between SBS and its preferred shareholders to the courts to work out.