The DISH bond underwent a substantial surge in yields following a strategic asset transfer involving valuable spectrum licenses, prompting concerns among bondholders about potential collateral weakening and creditor conflicts.
The DISH 5.875 15-Nov-2024 USD bond (US25470XAW56) has witnessed a substantial shift in its yield, soaring by 656 basis points to 19.5% within the week.
Dish Network Corp. encountered a significant setback on January 10, as its bonds plummeted following the announcement of a strategic move involving the reshuffling of assets, including valuable spectrum licenses, into new subsidiaries. The Englewood, Colorado-based company transferred a subset of wireless spectrum licenses into a newly established legal entity under EchoStar, a move that set off concerns among holders of its over $20 billion debt.
The maneuver also involved freeing a new unit, holding 3 million television subscribers, from debt covenants, a move commonly seen as designating an unrestricted subsidiary in industry terms. Such asset shuffling and the creation of unrestricted subsidiaries often precede money-raising deals that can weaken the claims of existing creditors to collateral, a situation that has historically worried debt investors.
Following the asset transfer, more of Dish's debt slipped into distressed levels, with $11.9 billion of its bonds trading at over 10 percentage points above Treasuries, up from $9.4 billion at the beginning of the week. Specifically, its 7.75% notes due in 2026 experienced a significant drop, falling as much as 11.25 cents on the dollar to 58.5 cents, as reported by pricing source Trace.
John Dixon, a managing director and bond trader at brokerage Dinosaur Financial Group, highlighted the potential risks associated with such maneuvers, stating, "These kinds of maneuvers often result in what we call creditor-on-creditor violence, where new lenders appear and provide funds backed by the same assets that were just taken from the reach of existing debt holders."
Dish and EchoStar had completed a merger earlier in the year, aligning with Chairman Charlie Ergen’s strategy for Dish to transition from satellite television to wireless service. Interestingly, EchoStar stockholders seemed unfazed by the asset transfer plan, as the shares surged as much as 41%, marking the most intraday increase since 2008. In response to the concerns raised by the bond movement, Dish stated in the same announcement that it had enlisted advisers to evaluate potential strategic alternatives.
The highlighted bond holds a 'Caa2' rating from Moody's and a 'CCC+' rating from S&P, with EchoStar Corp concurrently maintaining a long-term issuer rating of 'CCC+' from S&P.
DISH Network Corp., a holding company that provides pay-TV services, conducts its operations through two main segments: Pay-TV and Wireless. The Pay-TV segment operates under both the DISH and Sling brands, while the Wireless segment is focused on wireless spectrum licenses and associated assets. Based in Englewood, CO, Dish Network now operates as a wholly-owned subsidiary of EchoStar Corporation, a transition that took effect upon the successful completion of the acquisition on December 31, 2023.
Founded in 1980 by Charles Ergen, EchoStar began as a distributor of C band TV systems and has since evolved significantly. In 1995, it launched its first satellite, EchoStar I, marking a pivotal moment in its trajectory. The year 2008 witnessed a transformative split, leading to the creation of DISH Network Corporation and EchoStar Corporation. Presently, EchoStar Corp. specializes in digital set-top boxes for satellite services, operating through segments like Hughes, providing broadband satellite technologies, and EchoStar Satellite Services (ESS), which owns and leases satellites. Headquartered in Englewood, CO, EchoStar continues to be a significant player in the satellite communication industry. The company has a market capitalization of $4.36 billion as of January 12, 2024.