initial filing documents in houston regional sports network lp involuntary chapter 11 case
DESCRIPTION
The initial filing documents in the involuntary chapter 11 bankruptcy case against Houston Regional Sports Network, LP, the limited partnership between the Houston Astros, the Houston Rockets and NBC Universal.TRANSCRIPT
B 5 (Official Form 5) (12/07)
UNITED STATES BANKRUPTCY COURT
__________ District of __________
INVOLUNTARY
PETITION
IN RE (Name of Debtor – If Individual: Last, First, Middle)
Last four digits of Social-Security or other Individual’s Tax-I.D. No./Complete EIN (If more than one, state all.):
ALL OTHER NAMES used by debtor in the last 8 years (Include married, maiden, and trade names.)
STREET ADDRESS OF DEBTOR (No. and street, city, state, and zip code) COUNTY OF RESIDENCE OR PRINCIPAL PLACE OF BUSINESS
ZIP CODE
MAILING ADDRESS OF DEBTOR (If different from street address)
ZIP CODE
LOCATION OF PRINCIPAL ASSETS OF BUSINESS DEBTOR (If different from previously listed addresses) CHAPTER OF BANKRUPTCY CODE UNDER WHICH PETITION IS FILED Chapter 7 Chapter 11
INFORMATION REGARDING DEBTOR (Check applicable boxes)
Nature of Debts (Check one box.) Petitioners believe: □ Debts are primarily consumer debts □ Debts are primarily business debts
Type of Debtor (Form of Organization)
□ Individual (Includes Joint Debtor) □ Corporation (Includes LLC and LLP) □ Partnership □ Other (If debtor is not one of the above entities, check this box and state type of entity below.) _________________________________________
Nature of Business (Check one box.)
□ Health Care Business □ Single Asset Real Estate as defined in 11 U.S.C. § 101(51)(B) □ Railroad □ Stockbroker □ Commodity Broker □ Clearing Bank □ Other
VENUE □ Debtor has been domiciled or has had a residence, principal place of business, or principal assets in the District for 180 days immediately preceding the date of this petition or for a longer part of such 180 days than in any other District. □ A bankruptcy case concerning debtor’s affiliate, general partner or partnership is pending in this District.
FILING FEE (Check one box) □ Full Filing Fee attached □ Petitioner is a child support creditor or its representative, and the form specified in § 304(g) of the Bankruptcy Reform Act of 1994 is attached. [If a child support creditor or its representative is a petitioner, and if the petitioner files the form specified in § 304(g) of the Bankruptcy Reform Act of 1994, no fee is required.]
PENDING BANKRUPTCY CASE FILED BY OR AGAINST ANY PARTNER OR AFFILIATE OF THIS DEBTOR (Report information for any additional cases on attached sheets.) Name of Debtor
Case Number Date
Relationship
District Judge
ALLEGATIONS (Check applicable boxes)
1. □ Petitioner (s) are eligible to file this petition pursuant to 11 U.S.C. § 303 (b). 2. □ The debtor is a person against whom an order for relief may be entered under title 11 of the United States Code. 3.a. □ The debtor is generally not paying such debtor’s debts as they become due, unless such debts are the subject of a bona fide dispute as to liability or amount;
or b. □ Within 120 days preceding the filing of this petition, a custodian, other than a trustee receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession.
COURT USE ONLY
Case 13-35998 Document 1 Filed in TXSB on 09/27/13 Page 1 of 5
B 5 (Official Form 5) (12/07) – Page 2 Name of Debtor______________________
Case No.____________________________
TRANSFER OF CLAIM
Check this box if there has been a transfer of any claim against the debtor by or to any petitioner. Attach all documents that evidence the transfer and any statements that are required under Bankruptcy Rule 1003(a).
REQUEST FOR RELIEF Petitioner(s) request that an order for relief be entered against the debtor under the chapter of title 11, United States Code, specified in this petition. If any petitioner is a foreign representative appointed in a foreign proceeding, a certified copy of the order of the court granting recognition is attached. Petitioner(s) declare under penalty of perjury that the foregoing is true and correct according to the best of their knowledge, information, and belief. x__________________________________________________________Signature of Petitioner or Representative (State title) Name of Petitioner Date Signed Name & Mailing Address of Individual ______________________ Signing in Representative Capacity ______________________
x______________________________________________________ Signature of Attorney Date Name of Attorney Firm (If any) _______________________________________________________ Address Telephone No.
x__________________________________________________________ Signature of Petitioner or Representative (State title) Name of Petitioner Date Signed Name & Mailing Address of Individual ______________________ Signing in Representative Capacity ______________________
x______________________________________________________ Signature of Attorney Date Name of Attorney Firm (If any) _______________________________________________________ Address Telephone No.
x__________________________________________________________ Signature of Petitioner or Representative (State title) Name of Petitioner Date Signed Name & Mailing Address of Individual ______________________ Signing in Representative Capacity ______________________
x______________________________________________________ Signature of Attorney Date Name of Attorney Firm (If any) _______________________________________________________ Address Telephone No.
PETITIONING CREDITORS Name and Address of Petitioner
Nature of Claim Amount of Claim
Name and Address of Petitioner
Nature of Claim Amount of Claim
Name and Address of Petitioner
Nature of Claim Amount of Claim
Note: If there are more than three petitioners, attach additional sheets with the statement under penalty of perjury, each petitioner’s signature under the statement and the name of attorney and petitioning creditor information in the format above.
Total Amount of Petitioners’ Claims
______continuation sheets attached
Case 13-35998 Document 1 Filed in TXSB on 09/27/13 Page 2 of 5
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13- : :
Attachment A
Petitioner declares under penalty of perjury that the foregoing is true and correct according to the best of his knowledge, information and belief. x_/s/ John C. Ruth_____________________________ Signature of Petitioner or Representative EVP, Finance__________________________________ Title
___09/27/2012 Date Signed
Comcast SportsNet California, LLC 4450 East Commerce Way Sacramento, CA 95834
x_/s/ Vincent. P. Slusher __ Signature of Attorney
___09/27/2012 Date Signed
DLA Piper LLP (US) 1717 Main Street Suite 4600 Dallas, Texas 75201-4629
Case 13-35998 Document 1 Filed in TXSB on 09/27/13 Page 3 of 5
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13- : :
Attachment B Involuntary Petition
Petitioning Creditors
Name and Address of Petitioning Creditor
Nature of Claim Amount of Claim
National Digital Television Center, LLC
4100 E. Dry Creek Road Centennial, CO 80122
Services Rendered $10,517.50
This is the amount due for services provided. This claim is unsecured.
Comcast Sports Management Services, LLC
One Comcast Center Philidelphia, PA 19103
Services Fees $1,251,573.75
Unpaid amount for management services rendered through September 27, 2013. This claim is unsecured.
Houston SportsNet Finance, LLC
One Comcast Center 1701 JFK Blvd. Philidelphia, PA 19103
Money Loaned $100,000,000
This is the USD principal amount of the applicable loan and does not include accrued and unpaid interest, fees, and other amounts. The loan is secured by all assets of the alleged debtor.
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Comcast SportsNet California, LLC
4450 East Commerce Way Sacramento, CA 95834
Services Rendered $43,129.02
This is the amount due for services provided. This claim is unsecured.
Case 13-35998 Document 1 Filed in TXSB on 09/27/13 Page 5 of 5
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13-35998 : :
EMERGENCY MOTION TO FILE REDACTED VERSIONS OF MOTION OF PETITIONING CREDITORS FOR APPOINTMENT OF
INTERIM CHAPTER 11 TRUSTEE AND SUPPORTING DECLARATIONS
THE COURT WILL CONDUCT A HEARING IN THIS MATTER AT A TIME TO BE DETERMINED BY THE COURT IN THE U. S. COURTHOUSE, 515 RUSK, HOUSTON, TEXAS, 77002.
BLR 9013-1(i) NOTICE: EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. BLR 9013-1(b)
NOTICE: THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING.
Houston SportsNet Finance, LLC, Comcast Sports Management Services, LLC, National
Digital Television Center, LLC, and Comcast SportsNet California, LLC (collectively, the
“Petitioning Creditors”) hereby move, pursuant to 11 U.S.C. § 107(b)(1) and Federal Rule of
Bankruptcy Procedure 9018, for leave to redact confidential commercial information from the
Case 13-35998 Document 2 Filed in TXSB on 09/28/13 Page 1 of 7
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publicly filed version of their motion to appoint an interim chapter 11 trustee, and supporting
declarations (the “Trustee Motion” and “Supporting Declarations”). In support hereof, the
Petitioning Creditors respectfully state as follows:
JURISDICTION AND VENUE
This Court has jurisdiction over the subject matter of this motion pursuant to 28 1.
U.S.C. §§ 157 and 1334. This matter is a core proceeding under 28 U.S.C. § 157(b). Venue is
proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409.
BACKGROUND
On September 27, 2013, the Petitioning Creditors filed an involuntary Chapter 11 2.
bankruptcy petition against Houston Regional Sports Network, L.P. (the “Alleged Debtor” or
“Network”) pursuant to Section 303(a) of the Code. On September 28, 2013, the Petitioning
Creditors filed a redacted version of the Trustee Motion with its Supporting Declarations along
with this Motion. In the Trustee Motion, the Petitioning Creditors seek an order appointing an
interim Chapter 11 trustee for “cause” or in the best interest of the estate because of a present,
debilitating deadlock in the Network’s management.
The Alleged Debtor is a joint enterprise among affiliates of the Houston Astros 3.
baseball team (“Astros”), the Houston Rockets basketball team (“Rockets”), and Houston
SportsNet Holdings, LLC (“Comcast Owner”), an affiliate of Comcast Corporation (together
with its affiliates, “Comcast”).
The Network has three limited partners—Comcast Owner, Rockets Partner, L.P. 4.
(“Rockets Partner”), and Astros HRSN LP Holdings LLC (“Astros Partner”). The Network also
has one general partner—Houston Regional Sports Network, LLC (the “General Partner”)—
which, subject to certain limitations, exercises exclusive management, supervision, and control
Case 13-35998 Document 2 Filed in TXSB on 09/28/13 Page 2 of 7
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over the Network’s properties and business. The General Partner’s sole purpose is to serve as
the Network’s general partner; it has no authority or power to act outside of that role. The
General Partner has three members—Comcast Owner, JTA Sports, Inc. (“Rockets Owner”) , and
Astros HRSN GP Holdings LLC (“Astros Owner”). Thus, whether as limited partners of the
Network or members of the General Partner, affiliates of the Rockets, the Astros, and Comcast
are the three owners and operators of the Network.
As a result of fundamental disagreement among those owners about the direction 5.
and management of the Network, the Alleged Debtor faces an urgent financial and corporate
governance crisis. The Network cannot pay its bills as they come due, cannot raise capital, and
cannot make key business decisions. To avoid the destruction of the Network’s substantial
value, the Petitioning Creditors, through the Trustee Motion, seek the appointment of a Chapter
11 trustee on an emergency basis.
The Trustee Motion and Supporting Declarations contain sensitive and 6.
confidential commercial information relating to confidential communications and pricing
information among and between Comcast, the Network, the Astros, and the Rockets (the
“Confidential Commercial Information”). Specifically, the Confidential Commercial
Information includes:
a. pricing and other terms of media rights agreements between the Network
and each of the Astros and Rockets;
b. pricing and other terms of a credit agreement between the Network and the
Comcast Lender;
c. pricing and other terms for oversight and operational services that
Comcast Sports Management Services, LLC provides to the Network;
Case 13-35998 Document 2 Filed in TXSB on 09/28/13 Page 3 of 7
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d. sensitive business negotiations relating to prior efforts among the parties
to address the Network’s financial distress; and
e. confidential information of the Alleged Debtor.
RELIEF REQUESTED AND BASIS FOR SUCH RELIEF
The Petitioning Creditors request the Court to (i) authorize, pursuant to section 7.
107(b) of the Bankruptcy Code and Bankruptcy Rule 9018, the Petitioning Creditors’ redaction
of the Confidential Commercial Information from the Trustee Motion and Supporting
Declarations, and (ii) permit the Petitioning Creditors to file a redacted version of the Trustee
Motion and Supporting Declarations on the electronic docket maintained in these chapter 11
cases. Additionally, the Petitioning Creditors request leave to provide (i) an unredacted copy of
the Trustee Motion and Supporting Declarations under seal with the Clerk of the Court and (ii)
copies of the unredacted Trustee Motion and Declarations, on a confidential basis, to the Court,
the United States Trustee for the Southern District of Texas, the Alleged Debtor, the Rockets,
and the Astros.
Section 107(b) of the Bankruptcy Code authorizes the Court to issue orders to 8.
protect entities from potential harm caused by the disclosure of confidential or sensitive
commercial information. See In re N. Bay Gen. Hosp., 404 B.R. 429, 438 (Bankr. S.D. Tex.
2009); In re Supplement Spot, LLC, 2009 WL 2006384, at *11 (Bankr. S.D. Tex. July 8, 2009).
Specifically, Section 107(b) provides:
On request of a party in interest, the bankruptcy court shall, and on the bankruptcy court’s own motion, the bankruptcy court may – (l) protect an entity with respect to a trade secret or confidential research, development, or commercial information . . .
11 U.S.C. § 107(b)(1).
Case 13-35998 Document 2 Filed in TXSB on 09/28/13 Page 4 of 7
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Bankruptcy Rule 9018 sets forth the procedures by which a party may move for 9.
relief under Section 107(b) and states:
On motion or on its own initiative, with or without notice, the court may make any order which justice requires ... to protect the estate or any entity in respect of a trade secret or other confidential research, development, or commercial information . . .
Fed. R. Bankr. P. 9018.
The purpose of Section 107 and Bankruptcy Rule 9018 is to protect “business 10.
entities from disclosure of information that could reasonably be expected to cause the entity
commercial injury.” In re Global Crossing, Ltd., 295 B.R. 720, 725 (Bankr. S.D.N.Y. 2003). A
party seeking such protection under Section 107(b) is not required to demonstrate “good cause.”
In re Faucett, 438 B.R. 564, 568 (Bankr. W.D. Tex. 2010) (citing In re Orion Pictures Corp., 21
F.3d 24, 28 (2d Cir. 1994)). Nor must an entity’s business information rise to the level of trade
secrets to be protected under Section 107(b). Orion, 21 F.3d at 28. Rather, if the material sought
to be protected satisfies one of the categories identified in Section 107(b), “the court is required
to protect a requesting party and as no discretion to deny the application.” Faucett, 438 B.R. at
567.
The Confidential Commercial Information that the Petitioning Creditors seek to 11.
protect falls squarely within the definition of confidential “commercial information” under
Section 107(b). “Commercial information” includes “information which would cause an unfair
advantage to competitors by providing them information as to the commercial operations of the
debtor.” In re Northstar Energy, Inc., 315 B.R. 425, 429 (Bankr. E.D. Tex. 2004) (quoting
Orion, 21 F.3d at 27). While the “‘commercial information’ exception is not intended to offer a
safe harbor for those who crave privacy,” it will “protect[] parties from the release of information
that could cause them harm or give competitors an unfair advantage.” In re Barney’s, Inc., 201
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B.R. 703, 709 (Bankr. S.D.N.Y. 1996) (section 107 protects, inter alia, terms of agreements with
suppliers, pricing formulae, and marketing strategies). See also In re Taiyo Corp., No. 93-
41092, 1993 WL 13003867 *2 (Bankr. S.D. Ga. Sept. 30, 1993) (sealing information in an
appraisal that “could affect the market” and finding that commercial information includes “more
than just information that gives competitors an unfair advantage”) (citing In re Lomas Financial
Corp., No. 90-7827, 1991 WL 21231 (S.D.N.Y. Feb. 11, 1991)). That is precisely the case here.
The Confidential Commercial Information contains confidential pricing and other 12.
terms and private commercial operations information that, if disclosed, could give competitors an
unfair advantage or otherwise cause financial harm to the Network, the Astros, the Rockets, and
the Petitioning Creditors.
Moreover, the Petitioning Creditors submit that the benefits to the estate of filing 13.
redacted versions of the Trustee Motion and Supporting Declarations outweigh any presumed
benefit of public access to court records, Faucett, 438 B.R. at 568—indeed the public is
unaffected by the redaction of the Confidential Commercial Information.
Case 13-35998 Document 2 Filed in TXSB on 09/28/13 Page 6 of 7
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CONCLUSION
For the foregoing reasons, the Petitioning Creditors respectfully request entry of an order
granting the relief requested herein and such other and further relief as the Court may deem
appropriate.
Respectfully submitted,
Howard M. Shapiro Craig Goldblatt Jonathan Paikin WILMER CUTLER PICKERING HALE AND
DORR LLP 1875 Pennsylvania Ave., N.W. Washington, D.C. 20006 (202) 663-6000
/s/ Vincent P. Slusher Vincent P. Slusher Andrew Zollinger DLA PIPER 1717 Main Street Suite 4600 Dallas, Texas 75201-4629 (214) 743-4500
George W. Shuster, Jr. WILMER CUTLER PICKERING HALE AND
DORR LLP 7 World Trade Center 250 Greenwich Street New York, NY 10007 (212) 230-8800
Arthur J. Burke Dana M. Seshens Timothy Graulich DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, NY 10017 (212) 450-4000
Counsel for the Petitioning Creditors
Dated: September 28, 2013
Case 13-35998 Document 2 Filed in TXSB on 09/28/13 Page 7 of 7
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13-35998 : :
EMERGENCY MOTION OF PETITIONING CREDITORS FOR APPOINTMENT OF INTERIM CHAPTER 11 TRUSTEE
THE COURT WILL CONDUCT A HEARING IN THIS MATTER AT A TIME TO BE DETERMINED BY THE COURT IN THE U. S. COURTHOUSE, 515 RUSK, HOUSTON, TEXAS, 77002.
BLR 9013-1(i) NOTICE: EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. BLR 9013-1(b)
NOTICE: THIS MOTION SEEKS AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOU MUST FILE AND SERVE YOUR RESPONSE WITHIN 21 DAYS OF THE DATE THIS WAS SERVED ON YOU. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING.
Houston SportsNet Finance, LLC, Comcast Sports Management Services, LLC, National
Digital Television Center, LLC, and Comcast SportsNet California, LLC. (collectively, the
“Petitioning Creditors”) hereby move, pursuant to 11 U.S.C. § 1104, for the appointment of an
interim trustee in this Chapter 11 case to administer the affairs of the alleged debtor, Houston
Regional Sports Network, L.P. (the “Alleged Debtor” or “Network”), the corporate general
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partner of which is Houston Regional Sports Network, LLC (“General Partner”), because of a
present, debilitating deadlock in the General Partner’s, and hence the Network’s, management.
In support hereof, the Petitioning Creditors rely on the Declarations of Robert S. Pick, Jon D.
Litner, Bruce A. Davis, and John C. Ruth, attached hereto as Exhibits A through D, and further
respectfully state as follows:
JURISDICTION AND VENUE
This Court has jurisdiction over the subject matter of this motion pursuant to 28 1.
U.S.C. §§ 157 and 1334. This matter is a core proceeding under 28 U.S.C. § 157(b). Venue is
proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409.
The statutory basis for the relief requested herein is section 1104 of the 2.
Bankruptcy Code (the “Code”).
INTRODUCTION
The Alleged Debtor is a joint enterprise among affiliates of the Houston Astros 3.
baseball team (“Astros”), the Houston Rockets basketball team (“Rockets”), and Houston
SportsNet Holdings, LLC (“Comcast Owner”), an affiliate of Comcast Corporation (together
with its affiliates, “Comcast”). The primary purpose of the enterprise was to create and operate a
regional sports programming service (“Service”) to exhibit and distribute live Astros and
Rockets games within the league-permitted local territories. As a result of fundamental
disagreement among the partners about the direction and management of the Network, the
Alleged Debtor faces an urgent financial and corporate governance crisis. The Network cannot
pay its bills as they come due, cannot raise capital, and cannot make key business decisions.
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As a result, and as set forth further below, to avoid the destruction of the
Network’s substantial value, the Alleged Debtor requires the appointment of a Chapter 11 trustee
on an emergency basis.
4.
For months, the parties to the enterprise have struggled to reach agreement on 5.
action that would have avoided this bankruptcy proceeding.
But as a
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result of the impasse among the parties, the Network is now insolvent. As a result, after many
efforts to avoid this day, the Petitioning Creditors—each an affiliate of Comcast, but each a
separate entity that holds a claim not subject to bona fide dispute—have filed this involuntary
bankruptcy case.
The Network does have assets—including the right to telecast Astros and Rockets 6.
games, the right to receive monthly fees under an affiliation agreement with Comcast Cable
Communications, LLC (“Comcast Cable”) for distribution of the Network’s Service, and rights
to receive revenue from a few smaller operators that carry the Service. These assets have
significant value, the protection of which is the central purpose of this involuntary bankruptcy
filing.
Houston SportsNet Finance, LLC (“Comcast Lender”), the Network’s secured 7.
lender, believes the Network’s assets have meaningful value, and would be prepared to make a
bid to acquire either the Network (under a plan of reorganization) or substantially all of its assets.
Comcast Lender believes that such a transaction—if it were to close by the end of the calendar
year, and based on the Network’s indebtedness of which it is presently aware and that which it
anticipates the Network would incur by year end—would likely lead to prepetition creditors’
claims and all reasonably foreseeable administrative expenses being paid in full, and a material
distribution to equity holders. Comcast Lender of course appreciates that any such transaction
would need to be negotiated with and acceptable to the chapter 11 trustee, subject to an open
auction process, and ultimately approved by this Court. In addition, Comcast Lender stands
prepared, if requested by a Chapter 11 Trustee, to negotiate over the terms of possible debtor-in-
possession financing necessary to finance the Network’s operations until a sale can be
consummated.
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Petitioning Creditors are thus by no means seeking to dictate or asking this Court 8.
itself to determine how those assets will be restructured, liquidated, or otherwise treated. Rather,
they are asking this Court to appoint an independent and disinterested Trustee who will owe a
fiduciary duty to the Alleged Debtor’s estate, and who will be well equipped to make those
decisions for the otherwise hamstrung Alleged Debtor. Absent the appointment of a Trustee, the
substantial value that is currently locked up as a result of the dysfunction in the Alleged Debtor’s
governance structure will likely be lost—and lost forever—in the immediate future.
This Court has discretion to appoint an interim Chapter 11 trustee for “cause” or if 9.
such appointment is the best interest of the estate. 11 U.S.C. § 1104(a). Courts find “cause”
justifying the appointment of a Chapter 11 trustee where there are inherent conflicts of interests
such that the parties are “‘working at cross purposes,’” In re Marvel Entm’t Grp., Inc., 140 F.3d
463, 473 (3d Cir. 1998) (quoting In re Cajun Elec. Power Coop., Inc., 74 F.3d 599 (5th Cir.
1996)). In addition, “when the board of directors of a debtor corporation is effectively
deadlocked, appointment of a trustee is in the best interests of the bankruptcy estate.” In re New
Orleans Paddlewheels, Inc., 350 B.R. 667, 692 (Bankr. E.D. La. 2006). Thus, although the
appointment of a Chapter 11 trustee on an emergency basis is an extraordinary remedy, this case
presents precisely the type of exceptional circumstance in which such relief is necessary and
appropriate.
BACKGROUND
The Network is a Delaware limited partnership. It is the owner and operator of 10.
the Service, a Houston-area regional sports television network that produces and distributes
sports programming on a full time basis.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 5 of 25
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I. The Network
The Network has three limited partners—Comcast Owner, Rockets Partner, L.P. 11.
(“Rockets Partner”), and Astros HRSN LP Holdings LLC (“Astros Partner”). The Network also
has one general partner—Houston Regional Sports Network, LLC (the “General Partner”)—
which, subject to certain limitations, exercises exclusive management, supervision, and control
over the Network’s properties and business. The General Partner’s sole purpose is to serve as
the Network’s general partner; it has no authority or power to act outside of that role. The
General Partner has three members—Comcast Owner, JTA Sports, Inc. (“Rockets Owner”)1, and
Astros HRSN GP Holdings LLC (“Astros Owner”)2. Thus, whether as limited partners of the
Network or members of the General Partner, affiliates of the Rockets, the Astros, and Comcast
are the three (and the only three) owners and operators of the Network.
12.
In October of 2010, the Astros and the Rockets reached an agreement with an 13.
affiliate of Comcast for the purpose of launching the Service, a new regional sports programming
network that would distribute the teams’ games and other team-related programming within the
league-permitted local territories. On October 29, 2010, after lengthy negotiations among
Comcast, the Rockets and the Astros, including then-Astros-owner Drayton McLane, the parties
1 Rockets Partner, Rockets Owner, and Rocket Ball, Ltd. d/b/a the Houston Rockets (“Rockets Team”) are collectively referred to herein as “Rockets.” The Rockets Team is a professional basketball franchise in the National Basketball Association.
2 Astros Partner, Astros Owner, and Houston Astros, LLC (“Astros Team”) are collectively referred to herein as “Astros.” The Astros Team is a professional baseball franchise in Major League Baseball.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 6 of 25
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entered into the Network’s and General Partner’s operating agreements and other integrated
transaction documents (the “Transaction Documents”), pursuant to which Comcast was admitted
as a limited partner of the Network and as a member of the General Partner. As described in
greater detail below, the transaction also provided for, among other things, the Network’s right to
exploit the Rockets’ and Astros’ media rights, to receive management oversight and operational
services from Comcast Sports Management Services, LLC (“Comcast Services”), to be carried
on local cable systems owned by Comcast Cable under an affiliation agreement, and to borrow
up to $100 million from Comcast Lender.
II. The Petitioning Creditors and the Network’s Inability to Pay Its Debts As They Become Due
As set forth in the Declaration of Jon D. Litner (“Litner Declaration”) as part of 14.
the October 2010 transaction, the Network entered into an amended and restated media rights
agreement with each of the Astros and the Rockets (the “Astros Media Rights Agreement” and
the “Rockets Media Rights Agreement,” respectively),
15.
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16.
As set forth in the Declaration of Robert S. Pick, the Network also entered into an 17.
agreement (the “Credit Agreement”) with Comcast Lender
18.
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As of May 29, 2013, the
Comcast Loan has been fully drawn. Thus, the aggregate principal balance of the Comcast Loan
is currently $100 million.
As set forth in the Litner Declaration, on October 29, 2010, the Network also 19.
entered into an agreement (the “Services Agreement”) with Comcast Services, pursuant to which
Comcast Services agreed to provide the Network with management oversight and various
defined “Operational Services” in exchange for an annual fee (the “Service Fee”)
The pro-rated amount due as of the filing of the involuntary petition
is $1,251,573.75.
As set forth in the Declaration of Bruce A. Davis, National Digital Television 20.
Center, LLC provides transmission related services to the Network. As of the date of the filing
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 9 of 25
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of the involuntary petition, it holds an unsecured claim against the Network for $10, 517.50 for
services provided.
As set forth in the Declaration of John C. Ruth, Comcast SportsNet California, 21.
LLC facilitates the provision of production services to the Network. As of the date of the filing
of the involuntary petition, it holds an unsecured claim against the Network for $43,129.02.
22.
23.
24.
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25.
26.
27.
III. Failure of Management
The General Partner is managed by a Board of Directors (the “GP Board”) that is 28.
comprised of one representative each from the Astros and the Rockets and two representatives
from Comcast. Effectively, the GP Board manages the Network, pursuant to the Second
Amended and Restated Limited Liability Company Agreement of the General Partner, dated
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 11 of 25
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October 29, 2010 and executed by and among the members of the General Partner (the “GP
Operating Agreement”).
29.
As further described herein, however, the GP Board is simply unable to reach the
requisite consent on most key decisions. As a result, it has become effectively impossible for the
Network to operate, thus precipitating the Network’s current financial distress.
A. Inability to Enter Into Affiliation Agreements
Regional sports networks like the Network generate the vast majority of their 30.
revenue by entering into affiliation agreements with MVPDs that agree to carry the network in
exchange for per-subscriber fees, such as the Comcast Cable Agreement.
Back in October 2010, in conjunction with the negotiation of the other 31.
Transaction Documents, the Rockets and Astros negotiated directly with Comcast Cable
regarding the terms and rates that it would agree to with respect to its carriage of the Network’s
Service.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 12 of 25
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32.
On November 17, 2011, Jim Crane and a group of investors (the “Crane 33.
Ownership Group”) purchased the Astros from Drayton McLane, including the Astros’ interest
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 13 of 25
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in the Network and its General Partner.
34.
35.
B. The Failure of Efforts to Fund or Restructure the Network
With the GP Board at a complete impasse, the Network is powerless to continue 36.
its affairs and pay its debts.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 14 of 25
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As described in greater detail below, the
deadlock among the parties has thwarted all efforts to engage in any constructive exercise to
salvage the Network.
37.
38.
39.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 15 of 25
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40.
41.
. Accordingly, the question before
this Court is by no means who is “right” or “wrong” in the various disagreements that have
arisen among the parties. This bankruptcy filing is not an effort to have this Court adjudicate any
such dispute. Rather, regardless of who is to blame, the point of this proceeding is to preserve
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 16 of 25
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the going concern value of the Network for the benefit of all of its constituencies—an objective
that manifestly cannot be achieved by any means other than through the bankruptcy process.
III. The Involuntary Petition
On September 27, 2013, the Petitioning Creditors filed an involuntary Chapter 11 42.
bankruptcy petition against the Network pursuant to section 303(a) of the Code. Pursuant to
Bankruptcy Rule 1011(b), the Network’s response to the petition is due on October 18, 2013.
RELIEF REQUESTED
The Petitioning Creditors seek the entry of an order, pursuant to section 1104 of 43.
the Code directing the Office of the U.S. Trustee to appoint an interim trustee in this Chapter 11
case.
ARGUMENT
Section 303(f) of the Code provides that a debtor in an involuntary case will 44.
continue to operate its business as a debtor-in-possession absent an order of the court. Indeed,
there is a strong presumption that a debtor should remain in possession of its estate and control
its affairs. See In re Sharon Steel Corp., 871 F.2d 1217, 1225 (3d Cir. 1989). That presumption
only holds true, however, if management, among other things, is free from conflicts and not
“effectively deadlocked.” See Marvel Entm’t, 140 F.3d at 474; New Orleans Paddlewheels, 350
B.R. at 692.
11 U.S.C. § 1104—which allows for the appointment of a trustee in a Chapter 11 45.
case—provides an “important protection that the Court should not lightly disregard or encumber
with overly protective attitudes towards debtors-in-possession.” In re Colorado-Ute Elec. Ass’n,
Inc., 120 B.R. 164, 173-74 (Bankr. D. Co. 1990). It provides:
(a) At any time after the commencement of the case but before confirmation of a plan, on request of a party in interest or the United States trustee, and after notice
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 17 of 25
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and a hearing, the court shall order the appointment of a trustee—
(1) for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case, or similar cause, but not including the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor; or
(2) if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor.
11 U.S.C. § 1104(a).
Section 1104 thus establishes two independent grounds for the appointment of a 46.
Chapter 11 trustee: It provides for the mandatory appointment of a trustee for cause; and it
grants the court discretion to appoint a trustee in the absence of cause when the appointment is in
the best interests of creditors. 11 U.S.C. § 1104(a)(1),(2). A party moving for a trustee’s
appointment may establish the need for a trustee under either ground “by clear and convincing
evidence.” Marvel Entm’t, 140 F.3d at 471.
As set forth more fully below, the facts here warrant the appointment of a Trustee 47.
on both grounds. The total gridlock in the GP’s Board and thus the Network’s management
provides cause for a trustee’s appointment. Each member of the General Partner is an affiliate of
an important creditor and contractual counterparty of the Network. And there is no question that
if the existing corporate governance structure remains in place, the Network will remain
encumbered by management deadlock and paralysis and the Network will be unable to take
actions necessary to operate its business affairs for the benefit of creditors and other
stakeholders. Accordingly, the best interest of the Network’s other constituencies will be served
by the appointment of an independent interim chapter 11 trustee.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 18 of 25
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I. The Network is a Proper Involuntary Debtor under 11 U.S.C. § 303
By its terms, Section 1104 applies “at any time after commencement of the 48.
case[,]” and therefore may be invoked during the “gap period” in an involuntary case. See In re
Prof’l Accountants Referral Servs., Inc., 142 B.R. 424, 429 (Bankr. D. Colo. 1992) (“[T]he
appointment of a trustee during the gap period—before an order for relief is entered—is
authorized and proper under 11 U.S.C. §§ 1104(a)(1), 105, and by analogy, 303(g).”).
Before a court may order a trustee’s appointment during the “gap period,” the 49.
movant must show as a threshold matter, a “reasonable likelihood, or probability, that this
Debtor will eventually be found to be a proper involuntary debtor under 11 U.S.C. § 303 and that
an order for relief will enter.” Prof’l Accountants, 142 B.R. at 429. That test is fully satisfied
here.
Under Section 303(b)(1), an involuntary petition may be commenced “by three or 50.
more entities, each of which is … a holder of a claim against such person that is not contingent
as to liability or the subject of a bona fide dispute as to liability or amount, … if such
noncontingent, undisputed claims aggregate at least $15,325 more than the value of any lien on
property of the debtor securing such claims held by the holders of such claims.…” 11 U.S.C.
§ 303(b)(1). As described above, the four Petitioning Creditors collectively hold claims against
the Network in the amount of $101,305,220.27, of which $1,305,220.77 is unsecured.3 As set
forth in the attached Declarations, these obligations are not contingent or subject to a bona fide
dispute. Nor are there legal or factual questions regarding the Network’s liability to the
Petitioning Creditors, or the amount of their claims.
3 Comcast Lender is a valid petitioning creditor under Section 303(b)(1) even if its claim is fully secured. See Paradise Hotel Corp. v. Bank of Nova Scotia, 842 F.2d 47, 50 (3d Cir. 1988) (fully secured creditor may be one of the three creditors filing an involuntary petition, so long as the total unsecured debt of the petitioning creditors satisfies the statutory amount of Section 303(b)(1)).
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 19 of 25
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Nor can there be any dispute that the Network “is generally not paying [its] debts 51.
as [they] become due.” 11 U.S.C. § 303(h)(1). The Network’s largest matured debts—the July
and August installment payments to the Astros—remain unpaid and are by themselves more than
sufficient to meet this standard. See In re Fischer, 202 B.R. 341, 350-51 (E.D.N.Y. 1996).
Moreover, the Network has insufficient funds to make installment media rights payments that
will come due and owing to Astros and Rockets in the next 60 days. Accordingly, the statutory
standards are readily satisfied.
II. There is Cause to Appoint a Chapter 11 Trustee
The facts in this case warrant the appointment of an interim trustee under 11 52.
U.S.C. § 1104(a). While section 1104(a) enumerates four bases on which a court may find
cause—fraud, dishonesty, incompetence, and gross mismanagement—those grounds are
illustrative, not exclusive, see Colorado-Ute, 120 B.R. at 174 (citing In re Oklahoma Refining
Co., 838 F.2d 1133, 1136 (10th Cir. 1988)), and this Court has broad discretion when
determining whether the facts before it constitute “cause.” See, e.g., In re Cardinal Industr., 109
B.R. 755 (Bankr. S.D. Ohio 1990) (finding the cumulative effect of various events that caused a
loss of confidence in the debtor’s management to be “cause” for the appointment of a trustee);
Colorado-Ute, 120 B.R. at 175 (appointing a trustee because of conflicts between the debtor’s
management and its creditors).4
“[M]ere conflicts or acrimony between debtor and creditor” do not automatically 53.
“mandate the appointment of a trustee[;]” however, courts routinely find cause when there are
“inherent conflicts [that] extend beyond the healthy conflicts that always exist between debtor
and creditor, or ... when the parties ‘begin working at cross-purposes.’” Marvel Entm’t, 140 F.3d
4 If the court finds cause for the appointment of a trustee, “the Court has no discretion, but
must appoint a trustee.” Colorado-Ute, 120 B.R. at 174.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 20 of 25
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at 471-73 (affirming appointment of chapter 11 trustee where controlling shareholder group that
took over debtor management in an hostile manner post-petition also controlled creditors of the
debtor, and extreme acrimony existed between controlling shareholder group and other creditors
of the debtor who had opposed the takeover) (citing In re Cajun Elec. Power Coop., Inc., 74 F.3d
599 (5th Cir. 1996) (adopting on rehearing the dissent’s opinion in 69 F.3d at 751)). See also In
re New Towne Dev., LLC, 404 B.R. 140, 149 (Bankr. M.D. La. 2009) (appointing chapter 11
trustee where members of debtor’s management were engaged in disputes and half of debtor’s
management owned debtor’s principal creditor).
In Cajun Electric, for example, the Fifth Circuit upheld the appointment of a 54.
Chapter 11 trustee based on the debtor’s acrimonious relations with creditors and its board’s
irremediable conflicts. In re Cajun Elec., 74 F.3d at 599 (adopting on rehearing the dissent’s
opinion in 69 F.3d 746, 751). There, the Louisiana Public Service Commission (“LPSC”) had
ordered Cajun to lower its electricity rates, making it impossible for the company to meet its debt
obligations. In re Cajun Elec., 69 F.3d 746, 747 (5th Cir. 1995). Cajun’s board members had to
decide whether to appeal the LPSC order; however, many of its members were managers or
board members of Cajun’s electric cooperatives, which cooperatives bought electricity from
Cajun. Id. Therefore, if those members voted to appeal the rate decrease, they would effectively
be voting to raise the prices of electricity for the cooperatives. Id. The court concluded that
appointment of Chapter 11 trustee was appropriate because the debtor-creditor conflict went
“beyond the ‘inherent’ conflicts under which all healthy cooperatives operate.” Id. at 751.
Indeed, it noted that members of the board had been working at “cross-purposes,” mandating an
“appointment [as] the only effective way to pursue a reorganization.” Id.
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 21 of 25
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As described above, the corporate governance crisis facing the Alleged Debtor 55.
has created total gridlock.
Whatever the
reasons for the deadlock and regardless of who is to blame, it cannot be disputed that the key
constituencies of the Alleged Debtor are now unable to take the actions necessary to preserve the
Network as a going concern. The conflicts go beyond mere acrimony: the General Partner’s
Board has been, and unless effectively replaced by a Chapter 11 trustee, will continue to be
working at “cross-purposes.” Cajun Elec., 69 F.3d at 751. There is thus cause to appoint an
interim trustee—indeed, it is “the only effective way to pursue a reorganization.” Id.
III. The Appointment of a Trustee is in The Best Interests of Creditors
Even if this Court were not to find cause under section 1104(a)(1), the 56.
appointment of an interim trustee is appropriate under section 1104(a)(2). Section 1104(a)(2)
authorizes the appointment of a trustee if the appointment is in the “best interests” of creditors,
and gives the courts broader discretion than subsection (a)(1). Marvel Entm’t, 140 F.3d at 474
(“§ 1104(a)(2) ‘envisions a flexible standard’”); see also In re Bellevue Place Associates, 171
B.R. 615, 623 (Bankr. N.D. Ill. 1994), aff’d, 1994 U.S. Dist. LEXIS 17409 (N.D. Ill. Dec. 6,
1994); In re Microwave Products of America, Inc., 102 B.R. 666, 675 (Bankr. W.D. Tenn. 1989)
(appointment of trustee was in the best interests of creditors where ineffective management
created a lack of creditor confidence and internal conflicts).
To determine best interests of creditors, courts “resort to broad equity powers. … 57.
Equitable remedies are a special blend of what is necessary, what is fair, and what is workable.”
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 22 of 25
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In re Hotel Assocs., Inc., 3 B.R. 343, 345 (Bankr. E.D. Pa. 1980). Applying those powers to
appoint a trustee under section 1104(a)(2), courts “eschew rigid absolutes and look to the
practical realities and necessities inescapably involved in reconciling competing interests.” Id.
Courts have long recognized that a trustee should be appointed under section 58.
1104(a)(2) if the debtor and/or its key constituencies have conflicts that would prevent a debtor-
in-possession from managing the business in the best interests of creditors. See Marvel Entm’t,
140 F.3d at 474; In re L.S. Good & Co., 8 B.R. 312, 315 (Bankr. N.D. W. Va. 1980) (appointing
trustee was in best interest of creditors where current management would result in conflict).
“[W]hen the board of directors of a debtor corporation is effectively deadlocked, appointment of
a trustee is in the best interests of the bankruptcy estate.” New Orleans Paddlewheels, 350 B.R.
at 692 (citing Matter of Tahkenitch Tree Farm P’ship, 156 B.R. 525 (Bankr. E.D. La. 1993)).
It is clear that the Network cannot operate its business or preserve itself as a going 59.
concern under its current corporate governance structure, which has resulted in an irreconcilable
impasse,
Where, as here, management is deadlocked, the appointment of a trustee is
the best (and only) recourse to ensure reorganization and payments to creditors. See Marvel
Entm’t, 140 F.3d at 474 (“[T]he selection of a plan … is in the best interests of all creditors, and
the best way to achieve that result is to appoint a trustee.”); see also In re Colorado-Ute, 120
B.R. at 176 (appointment in best interests where “serious conflicts … between and among the
debtor, its board and creditors make the prospect for gridlock seem more probable than the
ability to rehabilitate the debtor”).
In addition, there are likely few other creditors in the case who would be 60.
adversely affected by the costs of a Chapter 11 trustee. See In re Sundale, Ltd., 400 B.R. 890,
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 23 of 25
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901 (Bankr. S.D. Fla. 2009) (explaining that in deciding whether to appoint trustee, court should
consider the costs to creditors); In re Sharon Steel Corp., 86 B.R. 455, 466 (Bankr. W.D. Pa.
1988) (“In a case of this magnitude, the cost of having a trustee in place is insignificant when
compared with the other costs of administration and when compared with the enormous benefit
to be achieved by the establishment of trust and confidence in ... management.”). And in any
event, any potential costs are clearly outweighed by the benefits of having an interim trustee set
the Network back on whatever forward-looking track that trustee determines most appropriate.
Moreover, as described above, because Comcast is prepared to negotiate with a trustee toward a
proposal that allow creditors and administrative claimants to be paid in full, and material value to
be distributed to equity holders, there can be little question that the appointment of a trustee
would serve the estate’s interests. As the Bankruptcy Court in the Eastern District of Louisiana
has stated, “Without a board to approve a plan, none can be formulated or proposed. Without a
plan, this debtor may not emerge from bankruptcy and the creditors [cannot] be paid.” New
Orleans Paddlewheels, 350 B.R. at 692. Precisely the same is true here.
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CONCLUSION
For the foregoing reasons, the Petitioning Creditors respectfully request that the Court
order the appointment of an interim Chapter 11 trustee.
Respectfully submitted,
Howard M. Shapiro Craig Goldblatt Jonathan Paikin WILMER CUTLER PICKERING HALE AND
DORR LLP 1875 Pennsylvania Ave., N.W. Washington, D.C. 20006 (202) 663-6000
/s/ Vincent P. Slusher Vincent P. Slusher Andrew Zollinger DLA PIPER 1717 Main Street Suite 4600 Dallas, Texas 75201-4629 (214) 743-4500
George W. Shuster, Jr. WILMER CUTLER PICKERING HALE AND
DORR LLP 7 World Trade Center 250 Greenwich Street New York, NY 10007 (212) 230-8800
Arthur J. Burke Timothy Graulich Dana M. Seshens DAVIS POLK & WARDWELL LLP 450 Lexington Avenue New York, NY 10017 (212) 450-4000
Counsel for the Petitioning Creditors Dated: September 28, 2013
Case 13-35998 Document 3 Filed in TXSB on 09/28/13 Page 25 of 25
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13-35998 : :
DECLARATION OF ROBERT S. PICK IN SUPPORT OF PETITIONING CREDITORS’ MOTION FOR AN ORDER APPOINTING AN INTERIM TRUSTEE
1. My name is Robert S. Pick. I am a Senior Vice President of Houston SportsNet
Finance, LLC (“Comcast Lender”), a Delaware limited liability company. I make this
Declaration in support of the Petitioning Creditors’ motion for the appointment of an interim
trustee in this Chapter 11 case. I make this Declaration solely in my capacity as a Senior Vice
President of Comcast Lender. In that capacity, I am familiar with and have personal knowledge
of the facts set forth herein.
The Network
2. Houston Regional Sports Network, L.P. d/b/a Comcast SportsNet Houston (the
“Network”) is a Delaware limited partnership. The Network is the owner and operator of a
Houston-area regional sports television network that produces and distributes sports
programming on a full-time basis.
Partners in the Network
3. The Network has three limited partners and one general partner. The limited
partners in the Network are Houston SportsNet Holdings, LLC (“Comcast Owner”), Rockets
Partner, L.P. (“Rockets Partner”), and Astros HRSN LP Holdings LLC (“Astros Partner”).
Case 13-35998 Document 4 Filed in TXSB on 09/28/13 Page 1 of 5
2
4. Houston Regional Sports Network, LLC (the “General Partner”), is the general
partner in the Network and, subject to certain limitations, exercises exclusive management,
supervision, and control over the Network’s properties and business. The General Partner’s sole
purpose is to serve as the Network’s general partner; it has no authority or power to act outside
of that role. The General Partner has three members: (1) Comcast Owner, (2) JTA Sports, Inc.
(“Rockets Owner”), and (3) Astros HRSN GP Holdings LLC (“Astros Owner”).
5. Rockets Partner and Rockets Owner are affiliates of Rocket Ball, Ltd. d/b/a the
Houston Rockets (“Rockets Team,” and together with Rockets Owner and Rockets Partner, the
“Rockets”), a professional basketball franchise in the National Basketball Association. Astros
Partner and Astros Owner are affiliates of Houston Astros, LLC (“Astros Team,” and together
with Astros Owner and Astros Partner, the “Astros”), a professional baseball franchise in Major
League Baseball. Comcast Owner and Comcast Lender are both affiliates of Comcast
Corporation (together with its affiliates, “Comcast”).
6. The General Partner is managed by a Board of Directors (the “GP Board”) that is
comprised of one representative each from the Astros and the Rockets and two representatives
from Comcast. Effectively, the GP Board manages the Network, pursuant to the Second
Amended and Restated Limited Liability Company Agreement of the General Partner, dated
October 29, 2010 and executed by and among the members of the General Partner (the “GP
Operating Agreement”).
Comcast Lender’s Loan to the Network
7. On October 29, 2010, Comcast Lender entered into an agreement (the “Credit
Agreement”) with the Network
Case 13-35998 Document 4 Filed in TXSB on 09/28/13 Page 2 of 5
3
8.
9.
10. As of May 29, 2013, the Comcast Loan has been fully drawn. Thus, the
aggregate principal balance of the Comcast Loan is currently $100 million.
Case 13-35998 Document 4 Filed in TXSB on 09/28/13 Page 3 of 5
4
11.
12. The Network’s debt to Comcast Lender under the Credit Agreement and
Promissory Note is not contingent or subject to bona fide dispute, and Comcast Lender does not
believe that the Network disputes the liability or amount of Comcast Lender’s claim.
13. Comcast Lender understands the Network is currently in financial distress and
may be unable to make its quarterly interest payments under the Credit Agreement in 2014.
14. Comcast Lender thus believes that the General Partner is unable to operate the
Network’s business affairs for the benefit of creditors and other stakeholders, and believes that it
would be in the best interest of Comcast Lender and the best interest of the Network’s other
constituencies for an independent Chapter 11 trustee to conduct a fair and open auction process
for the Network’s business assets on a going concern basis.
15. In addition, Comcast Lender believes the Network’s assets have meaningful
value, and would be prepared to make a bid to acquire either the Network (under a plan of
reorganization) or substantially all of its assets. Comcast Lender believes that such a
transaction—if it were to close by the end of the calendar year, and based on the Network’s
indebtedness of which it is presently aware and that which it anticipates the Network would incur
by year end—would likely lead to prepetition creditors’ claims and all reasonably foreseeable
Case 13-35998 Document 4 Filed in TXSB on 09/28/13 Page 4 of 5
5
administrative expenses being paid in full, and a material distribution to equity holders. Comcast
Lender of course appreciates that any such transaction would need to be negotiated with and
acceptable to the chapter 11 trustee, subject to an open auction process, and ultimately approved
by this Court. In addition, Comcast Lender stands prepared, if requested by a Chapter 11
Trustee, to negotiate over the terms of possible debtor-in-possession financing necessary to
finance the Network’s operations until a sale can be consummated.
I declare under penalty of perjury that the foregoing is true and correct.
_/s/ Robert S. Pick__________________ Robert S. Pick
Dated: Philadelphia, PA September 28, 2013
Case 13-35998 Document 4 Filed in TXSB on 09/28/13 Page 5 of 5
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13-35998 : :
DECLARATION OF JON D. LITNER IN SUPPORT OF PETITIONING CREDITORS’ MOTION FOR AN ORDER APPOINTING AN INTERIM TRUSTEE
1. My name is Jon D. Litner. I am the President of Comcast Sports Management
Services, LLC (“Comcast Services”), a Delaware limited liability company. I make this
Declaration in support of the Petitioning Creditors’ motion for the appointment of an interim
trustee in this Chapter 11 case. I make this Declaration solely in my capacity as President of
Comcast Services. In that capacity, I am familiar with and have personal knowledge of the facts
stated herein.
The Network
2. Houston Regional Sports Network, L.P. d/b/a Comcast SportsNet Houston (the
“Network”) is a Delaware limited partnership. The primary purpose of the Network is to create
and operate a regional sports programming service (“Service”) that produces, exhibits, and
distributes sports programming on a full-time basis, including live Astros and Rockets games
within the league-permitted local territories.
Partners in the Network
3. The Network has three limited partners and one general partner. The limited
partners in the Network are Houston SportsNet Holdings, LLC (“Comcast Owner”), Rockets
Partner, L.P. (“Rockets Partner”), and Astros HRSN LP Holdings LLC (“Astros Partner”).
Case 13-35998 Document 5 Filed in TXSB on 09/28/13 Page 1 of 11
2
4. Houston Regional Sports Network, LLC (the “General Partner”), is the general
partner in the Network and, subject to certain limitations, exercises exclusive management,
supervision, and control over the Network’s properties and business. The General Partner’s sole
purpose is to serve as the Network’s general partner; it has no authority or power to act outside
of that role. The General Partner has three members: (1) Comcast Owner, (2) JTA Sports, Inc.
(“Rockets Owner”), and (3) Astros HRSN GP Holdings LLC (“Astros Member”).
5. Rockets Partner and Rockets Owner are affiliates of Rocket Ball, Ltd. d/b/a the
Houston Rockets (“Rockets Team,” and together with Rockets Owner and Rockets Partner, the
“Rockets”), a professional basketball franchise in the National Basketball Association. Astros
Partner and Astros Owner are affiliates of Houston Astros, LLC (“Astros Team,” and together
with Astros Owner and Astros Partner, the “Astros”), a professional baseball franchise in Major
League Baseball. Comcast Owner is an affiliate of Comcast Corporation (together with its
affiliates, “Comcast”).
6. The General Partner is managed by a Board of Directors (the “GP Board”) that is
comprised of one representative each from the Astros and the Rockets and two representatives
from Comcast. Effectively, the GP Board manages the Network, pursuant to the Second
Amended and Restated Limited Liability Company Agreement of the General Partner, dated
October 29, 2010 and executed by and among the members of the General Partner (the “GP
Operating Agreement”).
Case 13-35998 Document 5 Filed in TXSB on 09/28/13 Page 2 of 11
3
7.
8. The current formulation of the Network (described above) was created in October
2010, when the Astros and the Rockets reached an agreement with an affiliate of Comcast for the
purpose of launching the Service, a new regional sports network that would distribute the teams’
games and other team-related programming in their respective league-permitted local territories.
On October 29, 2010, after lengthy negotiations among Comcast, the Rockets and the Astros,
including then-owner of the Astros, Drayton McLane, the parties entered into the Network’s and
General Partner’s operating agreements and other integrated transaction documents (the
“Transaction Documents”), pursuant to which Comcast was admitted as a limited partner of the
Network and as a member of the General Partner.
The Services Agreement and Comcast Services’ Claim
9. One of the Transaction Documents executed on October 29, 2010, was an
agreement (the “Services Agreement”) with Comcast Sports Management Services, LLC
(“Comcast Services”). Pursuant to the Services Agreement, Comcast Services agreed to provide
the Network with management oversight and various defined “Operational Services” in
exchange for an annual fee (the “Service Fee”)
Case 13-35998 Document 5 Filed in TXSB on 09/28/13 Page 3 of 11
4
The pro-rated
amount due as of the filing of the involuntary petition is $1,251,573.75.
10. Comcast Services has provided the Network with management oversight and
defined “Operational Services” in accordance with the terms of the Services Agreement and is
otherwise in compliance with the Services Agreement.
11. The Network’s debt to Comcast Services pursuant to the Services Agreement is
not contingent or subject to bona fide dispute, and Comcast Services does not believe that the
Network disputes the liability or amount of Comcast Services’ claim.
Astros Media Rights Agreement and the Network’s Failure To Pay Debt
12. On October 29, 2010, the Network also entered into an amended and restated
media rights license agreement (the “Astros Media Rights Agreement”) with the Astros.
13.
14.
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21.
Deadlock in the Network’s Management and Inability to Improve Cash-Flow
22. Regional sports networks like the Network generate the vast majority of their
revenue by entering into affiliation agreements with MVPDs that agree to carry the networks in
exchange for per-subscriber fees.
23.
24.
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25. Back in October 2010, in conjunction with the negotiation of the other
Transaction Documents, the Rockets and Astros negotiated directly with Comcast Cable
regarding the terms and rates that it would agree to with respect to its carriage of the Network’s
Service.
26.
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27. On November 17, 2011, Jim Crane and a group of investors (the “Crane
Ownership Group”) purchased the Astros from Drayton McLane, including the Astros’ interest
in the Network and its General Partner.
28.
29.
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30. With the GP Board at a complete impasse, the Network is powerless to continue
its affairs and pay its debts.
As described in greater detail below, the
deadlock among the parties has thwarted all efforts to engage in any constructive exercise to
salvage the Network.
31.
32.
33.
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34.
35. Comcast Services thus believes that the General Partner is unable to operate the
Network’s business affairs for the benefit of creditors and other stakeholders, and believes that it
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would be in the best interest of Comcast Services and the best interest of the Network’s other
constituencies for an independent Chapter 11 trustee to conduct a fair and open auction process
for the Network’s business assets on a going concern basis. Comcast Services has substantial
concern that if the existing corporate governance structure remains in place, the Network will
remain encumbered by management deadlock and paralysis and the Network will be unable to
take actions necessary to operate its business affairs for the benefit of creditors and other
stakeholders.
36. In short, the Network’s past and present behavior and the precarious state of its
finances makes clear that the appointment of an interim trustee is necessary in order to both
preserve the property of the estate and to prevent loss to the estate.
I declare under penalty of perjury that the foregoing is true and correct.
_/s/ Jon D. Litner_____________________ Jon D. Litner
Dated: Stamford, CT September 28, 2013
Case 13-35998 Document 5 Filed in TXSB on 09/28/13 Page 11 of 11
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13-35998 : :
DECLARATION OF BRUCE A. DAVIS IN SUPPORT OF PETITIONING CREDITORS’ MOTION FOR AN ORDER APPOINTING AN INTERIM TRUSTEE
1. My name is Bruce A. Davis. I am the Vice President for Financial Operations of
National Digital Television Center, LLC (“Comcast Media”). I make this Declaration in support
of the Petitioning Creditors’ motion for the appointment of an interim trustee in the Chapter 11
case of the Houston Regional Sports Network, L.P. d/b/a Comcast SportsNet Houston (the
“Network”) . I am familiar with and have personal knowledge of the facts set forth herein.
Comcast Media’s Claim against the Network
2. Comcast Media is an affiliate of Comcast Corporation. It provides transmission
related services for the Network in the form of satellite and fiber optic reception of various sports
programming that is not directly available to the Network at the Network’s master control
facility located at Altitude Sports in Denver. In addition, the high definition channel for the CSS
network, which supplies multiple weekly programs to the Network, is only distributed via the
closed loop of the Comcast Cable fiber backbone and therefore cannot be delivered directly to
the Network at its technical facility at Altitude. These programs must be recorded at Comcast
Media Center and delivered on tape to Altitude for playback. CSN Houston is billed for each
instance of program acquisition under this verbal arrangement.
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3. As of the date of this Declaration, the Network owes Comcast Media $10,517.50
on account of services provided, of the type described above.
4. The Network’s debt to Comcast Media is not contingent or subject to bona fide
dispute, and Comcast Media does not believe that the Network disputes the liability or amount of
Comcast Media’s claim.
I declare under penalty of perjury that the foregoing is true and correct.
_/s/ Bruce A. Davis____________________ Bruce A. Davis
Dated: Centennial, Colorado September 28, 2013
Case 13-35998 Document 6 Filed in TXSB on 09/28/13 Page 2 of 2
IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
In re: : : : Chapter 11 HOUSTON REGIONAL SPORTS : NETWORK, L.P. : Alleged Debtor. : Case No.: 13-35998 : :
DECLARATION OF JOHN C. RUTH IN SUPPORT OF PETITIONING CREDITORS’ MOTION FOR AN ORDER APPOINTING AN INTERIM TRUSTEE
1. My name is John C. Ruth. I am the Executive Vice President of Finance,
Planning and Business Operations of Comcast SportsNet California, LLC (“CSN CA”). I make
this Declaration in support of the Petitioning Creditors’ motion for the appointment of an interim
trustee in the Chapter 11 case of the Houston Regional Sports Network, L.P. d/b/a Comcast
SportsNet Houston (the “Network”). I am familiar with and have personal knowledge of the
facts set forth herein.
CSN CA’s Claim against the Network
2. CSN CA is an affiliate of Comcast Corporation and is a regional sports network
that primarily distributes programming in the northern California region, including the games of
the Oakland A’s and the Sacramento Kings. CSN CA facilitates the provision of production
services to the Network. Specifically, a verbal arrangement between the Network and CSN CA
allows the Network to produce an extremely economical telecast due to the sharing of major
technical infrastructure, cameras, replay devices and personnel with other networks producing
the same games—in this case CSN CA. In order to do this, CSN CA deploys a smaller, separate
unit to accommodate the Network’s production, and elements of the CSN CA broadcast are
blended with the reduced Network equipment complement and customized with graphics,
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announcers, etc., for the Network’s distribution of the game in its market. The Network is billed
by CSN CA for each instance of this type of production under this verbal arrangement.
3. As of the date of this Declaration, the Network owes CSN CA $43,129.02 on
account of services provided, of the type described above.
4. The Network’s debt to CSN CA is not contingent or subject to bona fide dispute,
and CSN CA does not believe that the Network disputes the liability or amount of Comcast CSN
CA’s claim.
I declare under penalty of perjury that the foregoing is true and correct.
_/s/ John C. Ruth ____________________ John C. Ruth
Dated: Stamford, CT September 28, 2013
Case 13-35998 Document 7 Filed in TXSB on 09/28/13 Page 2 of 2