Dish Bonds Plummet on EchoStar Spectrum Transfer Maneuver
(Bloomberg) -- Dish Network Corp. bonds plummeted Wednesday after the company announced a move to shuffle assets including valuable spectrum licenses into new subsidiaries, worrying holders of its more than $20 billion of debt.
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The Englewood, Colorado-based company transferred a handful of wireless spectrum licenses into a new legal entity under EchoStar, according to a Wednesday statement. Dish also said it freed from debt covenants a new unit holding 3 million television subscribers, known in industry parlance as designating an unrestricted subsidiary.
Shuffling assets and creating unrestricted subsidiaries are often preludes to money-raising deals that hurt existing creditors by weakening their claims to collateral. Debt investors have been fighting over and living in fear of aggressive versions of those moves — like a now-infamous financing from J. Crew Group — for years.
More of Dish’s debt fell into distressed levels after the maneuver, data compiled by Bloomberg show, with $11.9 billion of its bonds trading at more than 10 percentage points above Treasuries. That compares with $9.4 billion at the start of the week.
Its 7.75% notes due 2026 dropped as much as 11.25 cents on the dollar to 58.5 cents, according to pricing source Trace.
“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,” said John Dixon, a managing director and bond trader at brokerage Dinosaur Financial Group.
Dish and EchoStar completed a merger early this year as part of chairman Charlie Ergen’s plan for Dish to pivot from satellite television to wireless service. EchoStar stockholders took the asset transfer plan in stride, bidding the shares up as much as 41%, the most intraday since 2008. The company said in the same statement Wednesday that it has hired advisers to evaluate potential strategic alternatives.
--With assistance from Reshmi Basu and Todd Shields.
(Updates with new distressed debt figure in paragraph four, advisers in paragraph seven.)
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