In to implement its wireless deployment plan, DISH Network (DISH) -- the second largest satellite TV operator after DIRECTV (DTV), plans to raise nearly $1 billion through its subsidiary DISH DBS Corp. The amount will be raised by issuing senior notes. Fitch has rated BB- to the company’s recent debt offering plan.
Last year, DISH Network raised nearly $4.4 billion through the issue of senior notes. We consider two aspects for the company to raise such a huge amount of debt during the period.
Firstly, DISH Network gained the much-awaited FCC approval to set up wireless network across its footprint. So, DISH’s plan to set up wireless network without any wireless partner will be an extremely difficult task as it requires a huge investment and marketing support.
Secondly, there is a growing shortage of spectrum in the country. So, we believe that a mere 40 Mhz of spectrum will not be enough for DISH Network to establish a strong foothold in the U.S. To overcome that, the company may acquire further spectrum.
To materialize both its objectives, DISH Network bided for Clearwire Corporation (CLWR) at $3.30 per share. Clearwire currently holds a 2.5 GHz band of spectrum, which is suitable to deliver huge data, mainly comprised of HD videos. It also offers fixed and wireless services in the U.S.
However, the deal looks to be a distant dream as the parent company of Clearwire, Sprint Nextel Corp. (S), plans to acquire full stake of its sister concern at $2.97 per share.
DISH Network exited fiscal 2012 with an enormous $11.6 billion in long-term debt and $7.4 billion in cash. So, a further issue of debt will increase the financial risk for the company in terms of higher interest payments and increased leverage.
In the next five years, senior notes worth $4.7 billion will mature. Moreover, a debt of $500 million will be due in the current year. Hence, we believe that constant maturity of debt during this five-year period will not only affect DISH Network’s cash position but will also impact its future plan to rollout mobile broadband network across its footprint.
DISH Network currently has a Zacks Rank #3 (Hold).
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