DirecTV's deal to buy EchoStar's Dish satellite and streaming TV businesses is facing opposition from Dish's creditors, who would be forced to take a loss on the value of their debt.
Dish's creditors “plan to freeze an ailing exchange that is a key part of its partnership with rival DirecTV, according to people familiar with the matter,” Bloomberg reported today. “A group of investors on the steering committee have acquired a blocking position from negotiating with the company, the people said. They could even explore a better outcome through lawsuits, some people said.” The Bloomberg article was titled: “Dish-DirecTV deal triggers creditor revolt of more than $1.6 billion in losses.”
As Bloomberg notes, “Dish will need permission from its bondholders to exchange old debt for notes issued by the new combined entity” to complete the deal. An earlier Bloomberg article stated that “just over two-thirds of [Dish] Bondholders in each series of notes must agree to the exchange, with the deadline set for October 29.” EchoStar executives argue that bondholders will benefit from the merger by “owning debt from a stronger company with a lower debt load,” according to the article.
Credit rating agency S&P Global said in a research note that “these transactions amount to a default because investors will receive less value than the promise of the original securities,” according to Variety. On the other hand, S&P Global “added that the new notes will have a higher rate of 8.875 percent in exchange and will be backed by assets from the combined businesses of DirecTV and Dish,” Variety wrote.
Debt exchange
DirecTV agreed to buy the Dish satellite television and Sling TV businesses for a nominal consideration of $1, in exchange for assuming $9.75 billion in Dish debt. But DirecTV's deal announcement on Monday said the merger would need approval from Dish debt holders, who would see their investments devalued.
Dish notes would be exchanged with “a reduced principal amount of DirecTV debt, which will have terms and collateral that reflect DirecTV's existing secured debt,” DirecTV said. DirecTV's announcement goes on to say that the principal amount will be reduced by at least $1.568 billion and that the deal could be scrapped if debt holders object:
