DirecTV’s purchase of EchoStar’s subscription television business could collapse unless bondholders agree to accept a discount within the next week. But even if they don’t, EchoStar reassured investors it has raised enough capital to meet upcoming debt payments, allowing it to avoid a bankruptcy filing.
On Sept. 30, DirecTV announced it would pay $1 and assume $9.75 billion in Echostar debt to acquire the Dish Network. The deal offered EchoStar a way to unload a good chunk of its liabilities while also exiting a shrinking business. It provided DirecTV with a way to gain more customers and enough scale to strike better deals with content providers, boosting its chance of long-term survival.
The deal, however, hinged on EchoStar bondholders accepting a $1.57 billion discount on the face value of their debt. Feeling that unfair terms were being forced on them, many have refused the haircut, throwing everything into doubt.
DirecTV said it would rescind its purchase offer if the bondholders don’t come around, a move that could limit EchoStar’s financial options going forward.
“A successful exchange was a condition for acquiring the Dish video business,” DirecTV said in a statement Wednesday. “Given the outcome of the EchoStar exchange, DirecTV will have no choice but to terminate the acquisition of Dish by midnight Nov. 22.”
A failure to sell Dish would complicate EchoStar’s plans to pour more capital into the development of its 5G network, which it needs to complete so it isn’t as dependent on the AT&T and T-Mobile cellular networks. The more customers Boost — Echostar’s wireless brand — can keep inhouse, the lower its operating costs, which in turn frees up more cash to cover debt payments. About half of new wireless subscribers are signing on directly to the Boost network, but that share needs to grow.
Executives with the Englewood-based company told analysts that a series of recent financial moves, including raising $5.2 billion in fresh capital using its wireless spectrum as collateral, will allow them to go forward whether the television business is sold or retained.
“First of all, I want to say that, if the exchange does not close successfully, we’ll continue to operate our business. Our Dish business has been a business that is the primary business of this institution, and we continue to operate it as we have always had,” Hamid Akhavan, president and CEO of Echostar, told security analysts on an earnings call Tuesday.
Paul Orban, the company’s chief financial officer, reassured analysts on the call that EchoStar has enough money on hand to meet its upcoming debt payment.
“We ended the third quarter with over $2.7 billion of cash and marketable securities, including our restricted cash. We will fund the $2 billion of debt return this week from this restricted cash,” Orban said.
EchoStar shares, which closed at $26.13 on Monday, were at $21.99 on Thursday, a sign that investors weren’t pleased with the sale falling apart — although the earnings report could have played into the decline.
For now, EchoStar remains a “going concern,” which should have the 7,000 workers in metro Denver, half of its workforce of around 14,000 people, breathing easier. Of that Denver-area total, 2,400 are dedicated to wireless services, with most of the remainder in the satellite television side and a streaming service called Sling TV. The pay television side lost 43,000 subscribers in the third quarter, while Sling TV gained 145,000.
MoffettNathanson analyst Craig Moffett, in a research note written on Tuesday, argued that heavy debt and inadequate capital have forced EchoStar to mortgage its long-term future.
Boost Mobile, the consumer side of EchoStar’s cellular business, was supposed to serve as a stepping stone to the more lucrative commercial side of providing private 5G services to commercial customers.
Spending on the build-out of the company’s cutting-edge network is expected to run at only half of what it was last year. And while the Federal Communications Commission has given the company more breathing room to reach coverage targets, that also pushes out the timeframe for generating additional revenues.
“They have slashed the operating expenses associated with their wireless build by round after round of headcount reductions,” Moffett said. “Still, their 5G network build is burning through cash rapidly.”
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