The second-largest satellite TV operator in the U.S., DISH Network Corp.’s (DISH - Analyst Report) subsidiary, DISH DBS Corporation, plans to offer senior notes worth $2.5 billion subject to market and other conditions. This is the second debt sale by DISH in the last six weeks after it raised $2.3 billion from the market in Apr 2013.
Initially, the net proceeds will be placed in an escrow account and will be released only to finance a portion of the cash consideration for its proposed $25.5 billion takeover of Sprint-Nextel Corp. (S - Analyst Report) . The notes will only be offered and sold to qualified Institutional buyers and will not be registered under securities act or the securities law.
In Oct 2012, Japan’s SoftBank Corp. proposed to buy 70% of Sprint’s stake for a total consideration of $20.1 billion. However, DISH Network outbid SoftBank’s proposal by making a counter offer to completely acquire Sprint for $25.5 billion. DISH has offered $7 for each Sprint share, which includes $4.76 in cash and 0.05953 shares in DISH.
Recently, DISH announced that it plans to raise $9 billion in debt to fund the acquisition and this$2.5 billion debt offering is part of that plan. However, if the acquisition does not complete before the escrow end date, DISH DBS will redeem all of the $2.5 billion notes.
The Sprint acquisition will generate positive synergies for both the companies in terms of countering stiff competition from market leaders like AT&T Inc. (T - Analyst Report) and Verizon Communication Inc. (VZ - Analyst Report) , which dominate nearly 35% of the U.S. market. However, DISH has to overcome a lot of regulatory hurdles and challenges from Softbank before completing the acquisition.
DISH exited the first quarter of 2013 with an enormous $11.3 billion in long-term debt and $7.1 billion in cash. So, 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 for DISH. Moreover, a debt of $500 million will be due in the current year. Hence, we believe that the constant maturity of debt during the next 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 currently carries a Zacks Rank #5 (Strong Sell).