Dish creditors “revolt” over DirecTV merger, try to block loss-making deal

Debt holders oppose $1.6 billion value reduction, throwing wrench into TV merger.

See full article...

 

[jandrese]

EchoStar executives argue that debt holders will benefit from the merger by "owning debt of a stronger company with lower leverage," the article said.

This reads like "we are offering you the opportunity to jump out of the frying pan and into the fire." Given how doomed the industry is I guess it might be useful for getting stock that is easier to sell, but that 40% haircut has to hurt.

 

[raxadian]

Well my aunt uses Direct TV, wonder what she will do when the company finally dies?

 

[Ushio]

This reads like "we are offering you the opportunity to jump out of the frying pan and into the fire." Given how doomed the industry is I guess it might be useful for getting stock that is easier to sell, but that 40% haircut has to hurt.

If they don't agree to the deal Echostar/Dish will probably have to declare bankruptsy within the next calender year anyway since they won't be able to pay off their next debt interest payment.

I wonder how much they would lose in a chapter 11 bankruptsy in comparison.

 

[jhodge]

"The DirecTV/Dish merger does not include the Dish Network cellular business, which will continue to be owned by EchoStar."

This is a real thing? I remember it being proposed/created as a result of conditions places on the Sprint/Tmobile merger, but I don't think I've heard anything about it since.

 

[Dreadalus]

Getting a higher percentage return after a 40% devaluation is an insulting pittance. Also

The combined entity will also carry less debt, have higher ratings and generate more cash

means absolutely nothing to bondholders.

 

[Ushio]

"The DirecTV/Dish merger does not include the Dish Network cellular business, which will continue to be owned by EchoStar."

This is a real thing? I remember it being proposed/created as a result of conditions places on the Sprint/Tmobile merger, but I don't think I've heard anything about it since.

Echostar/Dish has spent billions on the roll out of Boost Mobiles 5G network but the pandemic and higher interest rates have both slowed and jacked up the cost of the roll out by a significant amount.

I think they had just over 70% of the US covered last I heard.

 

[Mungus the Unhyphenated]

Oh, dear. Somebody's line isn't going up!

 

[Fatesrider]

DirecTV argues that the merger with Dish "will benefit US video consumers by creating a more robust competitive force in a video industry dominated by streaming services owned by large tech companies and programmers."

Because mergers always manage to provide more value after the merger than before.

It's worked so well for...

* thinks about it *

Well, I'm sure it's worked for some company in the past, probably at least once, before the corporations went full moron mode and started ignoring customers and/or failed to adapt to the realities of the present.

But I'm not really sure it's worked that well for a technology that's slowly going extinct in the face of more evolved means of doing the same thing...

 

[skyywise]

No one wants this to be tied up in court, and they all know that regulatory approval is also fraught with risk. These shareholders will settle for some amount of cash, pending close of the deal. How much cash will be the subject of many, many negotiations with many, many lawyers at the table.

 

[adespoton]

No one wants this to be tied up in court, and they all know that regulatory approval is also fraught with risk. These shareholders will settle for some amount of cash, pending close of the deal. How much cash will be the subject of many, many negotiations with many, many lawyers at the table.

These aren't shareholders. They're bondholders. But they're in a difficult position: delay too long, and Dish will have to file Chapter 11, and as bondholders, they're slightly down the list of creditors, so they'll get a lot less back than 40%. So yes, lots of lawyers around a table, but not TOO many, and not for too long.

 

[BigFire]

These aren't shareholders. They're bondholders. But they're in a difficult position: delay too long, and Dish will have to file Chapter 11, and as bondholders, they're slightly down the list of creditors, so they'll get a lot less back than 40%. So yes, lots of lawyers around a table, but not TOO many, and not for too long.

Bondholders are in fact in front of shareholders when the company goes into liquidation. That's the condition for lending money to any entity.

 

[WhyNotZoidberg]

So a dying business with a steadily declining customer base and less and less relevance in the industry every day is going to assume almost $10B in debt from another dying business that's steadily losing customers and becoming less and less relevant in the industry every day.
How does this make sense?

Oh wait...private equity.

 

[AdamWill]

Getting a higher percentage return after a 40% devaluation is an insulting pittance. Also

means absolutely nothing to bondholders.

well, no, it means quite a lot: it means a higher chance the bond actually gets redeemed as opposed to the company going broke.

When you buy a bond you're essentially making a bet: you're betting the entity whose bond you bought will still be around and in a sufficient financial position to redeem it when it comes due. If it isn't, you get whatever the bankruptcy process leaves over for you, which is likely not a lot.

The most significant detail from the original story is for me is "Those who support the restructuring point out that Dish is providing a coupon bump to consenting lenders and a premium to market trading levels before the deal was announced."

What that means is: the value being offered for the bonds is less than face value, but more than the bond market currently values them at. The value the market puts on a given bond is essentially an expression of how much confidence it has that the bond will be redeemed. There's also an element of what the return on the bond will be versus what you could get by putting the same money in something else, but we can ignore that for this purpose. If the market is valuing a bond at significantly below its face value, that means the market is not confident the issuer will be able to redeem it, and the value is based on how significant that risk is combined with how much the market thinks the bond would be worth in a bankruptcy process.

So if you own one of these bonds at present, you basically have to ask yourself: do I think the market is wrong and an independent Dish will still be able to redeem my bond for full value? In which case you should oppose the deal. Or do I think the market is right and there's a significant chance Dish won't be able to do that? In which case you probably want to take the deal; it's a better option than crossing your fingers and holding out, or selling the bond on the market for less than you'll get in the deal.

None of this is really outrageous or illegal. If you're buying bonds you should be aware of the risks.

 

[Mad Klingon]

Big question for bondholders is what is the time required to break even on the 40% haircut? If it is more then a couple of years, very good chance they will be here again and with worse terms. Not exactly like this is a growth industry. May well be better as a bond holder to force liquidation now and hope you get better then 60% back.

 

[Bigdoinks]

This is me except with a single share of Intel down 40%. Hoping the DOJ fights acquisition away everyday for the next 20 years to recover.

 

[Edified]

I'm pretty sure that neither DirecTV or Dish's managers care at all about actually broadcasting TV channels. (Except perhaps as a statistic in a spreadsheet)

 

[tripinva]

"The DirecTV/Dish merger does not include the Dish Network cellular business, which will continue to be owned by EchoStar."

This is a real thing? I remember it being proposed/created as a result of conditions places on the Sprint/Tmobile merger, but I don't think I've heard anything about it since.

Yep. It's being sold under the Boost brand name but it definitely exists. It is very variable in terms of how useful it is. (Though it roams onto AT&T and T-Mobile which probably helps a lot.) They met their initial build-out requirements and so there's a lot of coverage but it's definitely sparse in places. I've been tracking it with a Boost phone locked to 5G to prevent it from pushing me to AT&T or T-Mobile.

To give an example, they hold a permit for a site very close to me--the same tower Verizon and AT&T use to serve my home. But they launched without it. The antennas are there now, have been for months, but it's not yet turned on. I'm a T-Mobile customer, and there are three T-Mobile cell sites between me and the Dish tower that I currently connect to at home. You can guess how the signal level is here.

They don't provide a coverage map of the native network, but you can find one from the FCC's broadband map records here: https://coveragemap.com/coverage-map/dish-wireless

 

[Rowboat]

If they don't agree to the deal Echostar/Dish will probably have to declare bankruptsy within the next calender year anyway since they won't be able to pay off their next debt interest payment.

I wonder how much they would lose in a chapter 11 bankruptsy in comparison.

I suspect the debt holders want the potential payoff of Echostar selling off their cellular business.

 

[Rowboat]

Relevant for the timing and deadlines involved - EchoStar has $2 billion in debt coming due in November and had just $521 million in cash back in June.

Source: https://www.cnbc.com/2024/09/27/ech...with-debt-payment-looming.html?&doc=108040838

 

[MrTom]

This sounds like a bad nightmare from the movie Trading Places.

 

[stormcrash]

Echostar/Dish has spent billions on the roll out of Boost Mobiles 5G network but the pandemic and higher interest rates have both slowed and jacked up the cost of the roll out by a significant amount.

I think they had just over 70% of the US covered last I heard.

They seem to feel confident enough now in the network that they've massively ramped up advertising. I've been seeing a ton of ads for Boost Mobile lately since they also decided to make Boost the primary brand for both pre and post pay operations. The Yellow network (Sprint) has been replaced by the New Orange of Boost (the old orange having been Cingular for those that remember)

 

[DJ Farkus]

Also newly relevant today: RSN Diamond Sports has dropped 10 of it's 11 contracted MLB teams.
DirecTV will shed another big round of cord-cutters from this. Circling the drain.

 

[Misguided Penguin]

This is just posturing to squeeze a slightly-less-bad offer from DirecTV. Anyone with a long term position in either of these companies that isn't huffing pure copium should be looking for any exit possible, and whilst this isn't great it's almost certainly better than the imminent bankrupcy, and buys a bit more time to find a greater fool to offload the bag too.

 

[Mossy]

Who are the doofuses that bought bonds from companies in a dying industry? I guess the typical Ivy League MBA who thought they were the smartest people in the room.

 

[Victor Bitu]

I'm pretty sure that neither DirecTV or Dish's managers care at all about actually broadcasting TV channels. (Except perhaps as a statistic in a spreadsheet)

They care about their gold parachutes , bonuses , value of their stocks .

 

[Derecho Imminent]

As with any negotiation, both sides want to get the best deal they can. And its almost certain the first offer is NOT the best they can do.

 

[Thatmushroom]

A few thoughts:

• Full disclosure, I worked there for a few months last year as a contractor in their wireless business. And nope'd out of there when they wanted to hire me full time. My personal opinion is that leadership (Charlie Ergen + whomever is in the rotating door of executive leadership) is a trainwreck who managed to destroy tens of billions of dollars of value over the past decade through a multitude of poor decisions. They make a lot of very decently skilled people work very ineffectively through their failures and bitter politics.
• Despire the bad leadership, a wireless network is perhaps a viable ongoing business, a greenfield cloud-native configurable one even more so, and we all would benefit for the wireless side to be functional and give the incumbents competition. They build in a few years what the incumbents took decades to do, and it is an impressive technical feat.
• To that end, quarantining their debt and a dragging legacy business so wireless (and satellite internet) have a fighting chance to succeed going forward is perhaps the only smart strategic play given the options available to them.
• I'm also much more sympathetic towards the position the FCC was in to approve the Sprint+T-mobile merger. Neither were in great shape, and in many ways, Dish was the only player with the scale and assets to create a viable competitor. Telco's do have incredibly extensive CapEx requirements and very specific regulatory requirements which effectively limit just how many corporations can reasonably exist. That doesn't excuse the poor management of, well, all of them, but I have a better understanding of the market because I got to peek behind the curtain.
• Purely speculation on my part, but I'm waiting for the day for SoftBank to buy up the mobile phone part of Dish. Charlie Ergen spent some time in Dubai last year trying to raise funding, couldn't, and the re-merger of Dish + Echostar was a consequence of not finding funding elsewhere. Dish needed money to pay back some bonds, and Charlie was/is the controlling shareholder of both companies. SoftBank, as a company with deep pockets, a head who's willing to drop absurd amounts of money, and expertise in telco (where Masayoshi Son made his money) feels like a much more natural owner.
• I also think ^that might be blocked on national-security grounds or Charlie-is-a-very-prideful-man grounds.
• This would not the first time Dish has been sued by bondholders this year. Echostar/Dish attempted to shelter some very valuable spectrum assets from creditors, and that's going over very well with said creditors /s.
• Picking a fight with the bondholders now, probably also the best strategic option. The knives come out when the good times stop, and the good times stopped in satellite TV a while ago. (Would highly recommend looking at the stock price over the past decade). That's business.
• LightReading is a good telco industry news site for those who want to follow the very nitty-gritty.

 

[stormcrash]

A few thoughts:

• Full disclosure, I worked there for a few months last year as a contractor in their wireless business. And nope'd out of there when they wanted to hire me full time. My personal opinion is that leadership (Charlie Ergen + whomever is in the rotating door of executive leadership) is a trainwreck who managed to destroy tens of billions of dollars of value over the past decade through a multitude of poor decisions. They make a lot of very decently skilled people work very ineffectively through their failures and bitter politics.
• Despire the bad leadership, a wireless network is perhaps a viable ongoing business, a greenfield cloud-native configurable one even more so, and we all would benefit for the wireless side to be functional and give the incumbents competition. They build in a few years what the incumbents took decades to do, and it is an impressive technical feat.
• To that end, quarantining their debt and a dragging legacy business so wireless (and satellite internet) have a fighting chance to succeed going forward is perhaps the only smart strategic play given the options available to them.
• I'm also much more sympathetic towards the position the FCC was in to approve the Sprint+T-mobile merger. Neither were in great shape, and in many ways, Dish was the only player with the scale and assets to create a viable competitor. Telco's do have incredibly extensive CapEx requirements and very specific regulatory requirements which effectively limit just how many corporations can reasonably exist. That doesn't excuse the poor management of, well, all of them, but I have a better understanding of the market because I got to peek behind the curtain.
• Purely speculation on my part, but I'm waiting for the day for SoftBank to buy up the mobile phone part of Dish. Charlie Ergen spent some time in Dubai last year trying to raise funding, couldn't, and the re-merger of Dish + Echostar was a consequence of not finding funding elsewhere. Dish needed money to pay back some bonds, and Charlie was/is the controlling shareholder of both companies. SoftBank, as a company with deep pockets, a head who's willing to drop absurd amounts of money, and expertise in telco (where Masayoshi Son made his money) feels like a much more natural owner.
• I also think ^that might be blocked on national-security grounds or Charlie-is-a-very-prideful-man grounds.
• This would not the first time Dish has been sued by bondholders this year. Echostar/Dish attempted to shelter some very valuable spectrum assets from creditors, and that's going over very well with said creditors /s.
• Picking a fight with the bondholders now, probably also the best strategic option. The knives come out when the good times stop, and the good times stopped in satellite TV a while ago. (Would highly recommend looking at the stock price over the past decade). That's business.
• LightReading is a good telco industry news site for those who want to follow the very nitty-gritty.

Only two nits of disagreement with your otherwise excellent assessment. T-Mobile was actually in pretty decent shape before they bought Sprint, certainly a long way from their nadir around 2010. Buying Sprint took them to the next level in terms of size but they were already in a pretty good position as the 3rd largest (I think they had already passed sprint from the MetroPCS deal).

Second is that Softbank is who ran Sprint into the ground at the end, so I'm not sure why they would want to have a second go, and I certanly don't want them to try. They had seemingly no plan for turning Sprint around despite their experience/origin in the Japanese wireless industry, and those deep pockets have already become distressed from tons of bad bets by Son as he tried to be the next warren buffet, his pockets were the driving force behind the meteoric rise and later implosion of weWork for instance, and very little money was really thrown Sprints way.

 

[Thatmushroom]

Only two nits of disagreement with your otherwise excellent assessment. T-Mobile was actually in pretty decent shape before they bought Sprint, certainly a long way from their nadir around 2010. Buying Sprint took them to the next level in terms of size but they were already in a pretty good position as the 3rd largest (I think they had already passed sprint from the MetroPCS deal).

Second is that Softbank is who ran Sprint into the ground at the end, so I'm not sure why they would want to have a second go, and I certanly don't want them to try. They had seemingly no plan for turning Sprint around despite their experience/origin in the Japanese wireless industry, and those deep pockets have already become distressed from tons of bad bets by Son as he tried to be the next warren buffet, his pockets were the driving force behind the meteoric rise and later implosion of weWork for instance, and very little money was really thrown Sprints way.

Thanks for the corrections+discussion! I guess my mental model for the T-Mobile/Sprint deal was more that we were bound to lose Sprint somewhere, so a merger with conditions on creating a new 4th player was a better bet than having Sprint get picked apart by ATT and Verizon. Poorly remembered + poorly stated on my part.

Also, I'd completely forgotten that Softbank was the org who owned Sprint back in the day. I had thought they'd want the possibility of something more stable after their WeWork debacle. That totally explains why they wouldn't.

 

[stormcrash]

Thanks for the corrections+discussion! I guess my mental model for the T-Mobile/Sprint deal was more that we were bound to lose Sprint somewhere, so a merger with conditions on creating a new 4th player was a better bet than having Sprint get picked apart by ATT and Verizon. Poorly remembered + poorly stated on my part.

Also, I'd completely forgotten that Softbank was the org who owned Sprint back in the day. I had thought they'd want the possibility of something more stable after their WeWork debacle. That totally explains why they wouldn't.

Part of me wonders if a Sprint bankruptcy would have been better or worse than the merger. It's entirely possible that the assets could have been scooped up by someone instead of having to start from near zero like Dish has, having only gotten spectrum and a prepaid business with a time limited MVNO agreement.

And yeah, the SoftBank "vision fund" turned out to be quite the albatross in the end. Son basically pumped money in saying "get big at all costs" hoping to cash out later when the competition had been crushed, but none of the bets really made it out of the burn money for heat phase of startup venture capital. Sprint meanwhile was starved if anything made worse with misguided ideas like the "Framily" plan and terrible advertising and a network in serious need of investment to not fall further behind

 

[real mikeb_60]

If they don't agree to the deal Echostar/Dish will probably have to declare bankruptsy within the next calender year anyway since they won't be able to pay off their next debt interest payment.

I wonder how much they would lose in a chapter 11 bankruptsy in comparison.

That's the "eminent domain" argument: we're going to take your property one way or another. You lose when we buy it now. You lose more (after legal fees/bankruptcy) if you force us to do it the hard way.

 

[ricardoRI]

Who are the doofuses that bought bonds from companies in a dying industry? I guess the typical Ivy League MBA who thought they were the smartest people in the room.

These bondholders did not pay anywhere near face value. Retail suckers bought bonds (with advice from their financial "advisors"), lost money, and the bottom feeders paid pennies for the bonds from the losers. The unknown (to us) is if they bought at 60% discount or 40% discount.

The bondholders have a priority over the stockholders, and will get a payout when it liquidates in bankruptcy court. The shareholders are screwed.

 

[Ushio]

That's the "eminent domain" argument: we're going to take your property one way or another. You lose when we buy it now. You lose more (after legal fees/bankruptcy) if you force us to do it the hard way.

It's not exactly new though Echostar/Dish has been warning bankruptsy could happen since the middle of 2023 it's why the majority shareholder of both merged them to use Echostar's cash and borrowing to bulk up Dish and Boost mobile but it's taking longer that expected.

A year later and things have gotten a lot worse so here's the next lifeline sell the legacy paid linear TV business to DirecTV for the price of taking on 60% of Echostar/Dish's current debt.

 

[jaredmauch]

This sounds like a bad nightmare from the movie Trading Places.

It's super common to sell liability for $1 as some people aren't sharks who will negotiate aggressively with contact or debt holders - this is why things like change of control clauses exist, as well as assignment clauses.

This is also about who bet on the bonds defaulting because the marketplace.

I'm expecting a lot of reckoning in the next few years in general as everything realigns.

You are already seeing it with the cell companies moving into home internet, cord cutting accelerated and services like YouTube tv winning out even for homes that have cable tv available.

The likelihood that ESPN will be unbundled in the next 5 years I feel is p>.9

 

[Faustius23]

That's the "eminent domain" argument: we're going to take your property one way or another. You lose when we buy it now. You lose more (after legal fees/bankruptcy) if you force us to do it the hard way.

Which probably isn't true, given that Echostar has been moving assets like spectrum and Dish's corporate headquarters out of reach of bondholders. By the time Dish files for bankruptcy, there likely won't be any assets left in the hollowed out company.

I imagine that by accepting the deal, bondholders would lose their right to sue regarding the asset transfers.

 

[Derecho Imminent]

If they don't agree to the deal Echostar/Dish will probably have to declare bankruptsy within the next calender year anyway since they won't be able to pay off their next debt interest payment.

I wonder how much they would lose in a chapter 11 bankruptsy in comparison.

I think there is a contradiction there. The debt interest is owed to the bond holders, correct? So it doesnt make sense that the bond holders would force them into bankruptcy if they are late on interest payments, if that means the bond holders lose even more in bankruptcy.

 

[Ushio]

I think there is a contradiction there. The debt interest is owed to the bond holders, correct? So it doesnt make sense that the bond holders would force them into bankruptcy if they are late on interest payments, if that means the bond holders lose even more in bankruptcy.

As far as my understanding goes not all the creditors looking to receive some of the $2 billion interest payment are bond holders in fact from my understanding bond holders normally would be well under half of a companies creditors.