MOODY'S AFFIRMS ECHOSTAR'S Ba3 SENIOR IMPLIED RATING AND ALL OTHER
EXISTING RATINGS FOLLOWING ANNOUNCEMENT OF PLANNED SATELLITE/LICENSE
PURCHASE; OUTLOOK REMAINS STABLE
Approximately $6 Billion of Rated Debt Securities Affected
New York, January 21, 2005 -- Moody's Investors Service affirmed all ratings for EchoStar Communications Corporation (EchoStar) and subsidiary EchoStar DBS Corporation (EDBS) following the company's announcement that it plans to purchase certain satellite assets from Rainbow DBS Co., a subsidiary of Cablevision Systems Corporation for $200 million. The ratings assume that EchoStar will fund the acquisition with cash on hand, estimated at approximately $1.2 billion following the payment of a special $455 million shareholder dividend in the fourth quarter of 2004. The rating affirmations reflect the still substantial cash balances available to the company, and specifically incorporate Moody's unchanged view that expansion of satellite assets is necessary to promote the future success of the business from a competitive perspective.
The following is a list of Moody's ratings and actions:
EchoStar Communications Corporation (EchoStar)
- $1 Billion of 5-3/4% Convertible Subordinated Notes due 2008 -- B2 (affirmed)
- Senior Implied Rating -- Ba3 (affirmed)
- Issuer Rating -- B1 (affirmed)
- Liquidity Rating -- SGL-1 (affirmed)
- Rating Outlook (all ratings for both EchoStar and EDBS) -- Stable (unchanged)
EchoStar DBS Corporation (EDBS)
- $1 Billion of 6-5/8% Senior Unsecured Notes due 2014 (new) -- Ba3 (affirmed)
- $446 Million (remaining amount) of 9-1/8% Senior Unsecured Notes due 2009 -- Ba3 (affirmed)
- $500 Million of Senior Unsecured Floating Rate Notes due 2008 -- Ba3 (affirmed)
- $1 Billion of 5-3/4% Senior Unsecured Notes due 2008 -- Ba3 (affirmed)
- $1 Billion of 6-3/8% Senior Unsecured Notes due 2011 -- Ba3 (affirmed) The Ba3 senior implied rating continues to reflect the company's moderately high financial leverage of approximately 5 times (on a trailing 12 months gross debt basis) and modest coverage levels; expectations of higher costs to both grow and retain subscribers in an increasingly competitive operating environment; and ongoing concerns about diminishing returns on invested capital and the long-term strategic position of the company, including the viability of the current business model on a stand-alone basis. Moody's also views the company's shift to more aggressive fiscal policies - specifically as evidenced by recent shareholder-friendly actions in the form of a special $455 million cash dividend in November 2004, which followed $1 billion of common stock repurchases between November 2003 and August 2004 and was subsequently followed by the announcement of an incremental $1 billion share repurchase authorization - as a constraining factor for ratings. Incremental risks associated with the company's increasingly flexible indenture agreements and the relative lack of transparency in forecasted performance levels has also remained a concern for the rating agency. The ratings continue to garner support, however, from the company's still solid liquidity position (based predominantly on its approximately $1 billion of balance sheet cash pro forma the asset purchase); the substantial and still rapidly growing subscriber base of over 10 million, which has recently evidenced better ARPU growth (albeit mostly rate driven); and modest positive free cash flow. Moody's also noted that availability of the technologically advanced Rainbow DBS satellite at a probable lower cost and within an earlier timeframe than that which otherwise would have occurred is considered to be a modest positive in support of the company's current ratings. The Ba3 senior implied also continues to incorporate short-term uncertainties regarding the company's intentions for its substantial cash balances; no restriction on utilization of this cash for strategic short term purposes exists. Moody's has historically hesitated to consider EchoStar's leverage on a net basis due to the lack of assurance that cash would be used to pay down debt, and the recent share repurchase and dividend activity substantiates this approach. Furthermore, the company's long term competitive viability as an essentially one-product company remains a concern, which is somewhat heightened by the likelihood that EchoStar's partnership with SBC will yield fewer subscribers as SBC focuses on offering video on a standalone basis. Moody's also expects competition from DirecTV to intensify under still relatively new DirecTV management. EchoStar's relative lack of product differentiation creates inherent business risk which, in Moody's view, demands greater flexibility and a stronger credit profile relative to EchoStar's cable TV peers. The stable outlook reflects Moody's expectation that EchoStar's balance sheet leverage is unlikely to change significantly over the next 12-to-18 months. Moody's will also monitor the growth of both EBITDA and capital expenditures because leverage on a debt-to-EBITDA basis could decline, but not materially enough to improve EchoStar's perceived credit profile if the decline occurs simultaneously with increased capital expenditures and depressed free cash flow. Lack of spending could hamper the company's growth prospects, however, and free cash flow growth achieved through spending cuts could be viewed negatively by Moody's. The potential for increasing investment requirements, a contrast to most cable companies which are now experiencing a declining and increasingly variable capital expenditure trends after heavy investments over the past several years, further supports Moody's view that EchoStar needs more financial flexibility than some of its pay TV competitors. The satellite asset purchase from Cablevision effectively constitutes the acceleration of otherwise inevitable future capital expenditures, in Moody's view, and as such represents a fiscally prudent use of capital which had already been anticipated. Application of cash on hand to reduce debt on a sustained basis could provide some support for rating lift or a renewed positive outlook bias, assuming Moody's believed that EchoStar had not effected such leverage reduction at the expense of its competitive position or financial flexibility. Conversely, sustained use of cash toward share buybacks could result in a negative rating outlook and/or potentially pressure the ratings downward. EchoStar Communications Corporation is a leading provider of direct broadcast satellite pay television services to approximately 10.5 million subscribers. The company maintains its headquarters in Englewood, Colorado.
EXISTING RATINGS FOLLOWING ANNOUNCEMENT OF PLANNED SATELLITE/LICENSE
PURCHASE; OUTLOOK REMAINS STABLE
Approximately $6 Billion of Rated Debt Securities Affected
New York, January 21, 2005 -- Moody's Investors Service affirmed all ratings for EchoStar Communications Corporation (EchoStar) and subsidiary EchoStar DBS Corporation (EDBS) following the company's announcement that it plans to purchase certain satellite assets from Rainbow DBS Co., a subsidiary of Cablevision Systems Corporation for $200 million. The ratings assume that EchoStar will fund the acquisition with cash on hand, estimated at approximately $1.2 billion following the payment of a special $455 million shareholder dividend in the fourth quarter of 2004. The rating affirmations reflect the still substantial cash balances available to the company, and specifically incorporate Moody's unchanged view that expansion of satellite assets is necessary to promote the future success of the business from a competitive perspective.
The following is a list of Moody's ratings and actions:
EchoStar Communications Corporation (EchoStar)
- $1 Billion of 5-3/4% Convertible Subordinated Notes due 2008 -- B2 (affirmed)
- Senior Implied Rating -- Ba3 (affirmed)
- Issuer Rating -- B1 (affirmed)
- Liquidity Rating -- SGL-1 (affirmed)
- Rating Outlook (all ratings for both EchoStar and EDBS) -- Stable (unchanged)
EchoStar DBS Corporation (EDBS)
- $1 Billion of 6-5/8% Senior Unsecured Notes due 2014 (new) -- Ba3 (affirmed)
- $446 Million (remaining amount) of 9-1/8% Senior Unsecured Notes due 2009 -- Ba3 (affirmed)
- $500 Million of Senior Unsecured Floating Rate Notes due 2008 -- Ba3 (affirmed)
- $1 Billion of 5-3/4% Senior Unsecured Notes due 2008 -- Ba3 (affirmed)
- $1 Billion of 6-3/8% Senior Unsecured Notes due 2011 -- Ba3 (affirmed) The Ba3 senior implied rating continues to reflect the company's moderately high financial leverage of approximately 5 times (on a trailing 12 months gross debt basis) and modest coverage levels; expectations of higher costs to both grow and retain subscribers in an increasingly competitive operating environment; and ongoing concerns about diminishing returns on invested capital and the long-term strategic position of the company, including the viability of the current business model on a stand-alone basis. Moody's also views the company's shift to more aggressive fiscal policies - specifically as evidenced by recent shareholder-friendly actions in the form of a special $455 million cash dividend in November 2004, which followed $1 billion of common stock repurchases between November 2003 and August 2004 and was subsequently followed by the announcement of an incremental $1 billion share repurchase authorization - as a constraining factor for ratings. Incremental risks associated with the company's increasingly flexible indenture agreements and the relative lack of transparency in forecasted performance levels has also remained a concern for the rating agency. The ratings continue to garner support, however, from the company's still solid liquidity position (based predominantly on its approximately $1 billion of balance sheet cash pro forma the asset purchase); the substantial and still rapidly growing subscriber base of over 10 million, which has recently evidenced better ARPU growth (albeit mostly rate driven); and modest positive free cash flow. Moody's also noted that availability of the technologically advanced Rainbow DBS satellite at a probable lower cost and within an earlier timeframe than that which otherwise would have occurred is considered to be a modest positive in support of the company's current ratings. The Ba3 senior implied also continues to incorporate short-term uncertainties regarding the company's intentions for its substantial cash balances; no restriction on utilization of this cash for strategic short term purposes exists. Moody's has historically hesitated to consider EchoStar's leverage on a net basis due to the lack of assurance that cash would be used to pay down debt, and the recent share repurchase and dividend activity substantiates this approach. Furthermore, the company's long term competitive viability as an essentially one-product company remains a concern, which is somewhat heightened by the likelihood that EchoStar's partnership with SBC will yield fewer subscribers as SBC focuses on offering video on a standalone basis. Moody's also expects competition from DirecTV to intensify under still relatively new DirecTV management. EchoStar's relative lack of product differentiation creates inherent business risk which, in Moody's view, demands greater flexibility and a stronger credit profile relative to EchoStar's cable TV peers. The stable outlook reflects Moody's expectation that EchoStar's balance sheet leverage is unlikely to change significantly over the next 12-to-18 months. Moody's will also monitor the growth of both EBITDA and capital expenditures because leverage on a debt-to-EBITDA basis could decline, but not materially enough to improve EchoStar's perceived credit profile if the decline occurs simultaneously with increased capital expenditures and depressed free cash flow. Lack of spending could hamper the company's growth prospects, however, and free cash flow growth achieved through spending cuts could be viewed negatively by Moody's. The potential for increasing investment requirements, a contrast to most cable companies which are now experiencing a declining and increasingly variable capital expenditure trends after heavy investments over the past several years, further supports Moody's view that EchoStar needs more financial flexibility than some of its pay TV competitors. The satellite asset purchase from Cablevision effectively constitutes the acceleration of otherwise inevitable future capital expenditures, in Moody's view, and as such represents a fiscally prudent use of capital which had already been anticipated. Application of cash on hand to reduce debt on a sustained basis could provide some support for rating lift or a renewed positive outlook bias, assuming Moody's believed that EchoStar had not effected such leverage reduction at the expense of its competitive position or financial flexibility. Conversely, sustained use of cash toward share buybacks could result in a negative rating outlook and/or potentially pressure the ratings downward. EchoStar Communications Corporation is a leading provider of direct broadcast satellite pay television services to approximately 10.5 million subscribers. The company maintains its headquarters in Englewood, Colorado.
