DISH Network: Deal Sparks Movement

Shares of DISH have been on a strong move higher over the past few weeks on increased volume, fueled by a recent deal where DISH’s Sling TV entered into an agreement with Zee Entertainment (NS:ZEE), an Indian based content provider. Zee entertainment now has a total of 27 channels with Sling TV offering users a wider selection to the archived library of content. Can DISH sustain the move?

A senior analyst at Wells Fargo (NYSE:WFC), Marci Ryvicker, CFA and CPA had the following notes on the recent developments on DISH.

This morning (6/9) DISH announced it has priced $2B of new senior notes due 2026 at 7.75%, expected to be placed on June 16th. We provide answers to some of the questions we’ve been getting since this morning’s announcement.

What are the proceeds for? The release states ”for strategic transactions, which may include wireless and spectrum-related transactions”–we believe some of the funds will be put toward the upfront payment that the FCC requires for participation in the forward part of the broadcast incentive auction. We would also point out that Charlie said on 6/2 that he’s running with less cash on the balance sheet than he is typically comfortable with (cash on hand was $709MM as of 3/31) so it also could be that DISH is just taking advantage of a favorable high yield market.

What do we know about the upfront payments? The size of every bidder’s upfront payment will vary as it is based on the specific licenses upon which it intends to bid as well as on the opening bid prices. For reference, to bid on 10MHz of nationwide spectrum, a bidder would need to make an upfront payment of $587MM (or $1.17B for 20MHz and so on). The deadline for upfront payments is July 1st at 5pm.

How active do we expect DISH to be in the incentive auction? Before this debt raise, we had thought that DISH would be relatively inactive during this auction. Clearly this $2B throws a bit of a wrench into that view; although our gut tells us that Charlie is just being opportunistic. He had always talked about the 600MHz as a ”nice-to-have” rather than a ”need-to-have” and we don’t think this view has changed.

What does this do to DISH’s leverage? By our calculation, this new debt issuance would raise DISH’s total leverage ratio to 4.6x from 4.0x–although net leverage would remain in the high 3x range until the cash is actually spent.

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DISH Network Corporation (NASDAQ:DISH), incorporated on April 26, 1995, is a holding company. The Company operates through two segments: DISH and Wireless. The Company offers pay-TV services under the DISH brand and the Sling brand (collectively Pay-TV services). The DISH branded Pay-TV service consists of Federal Communications Commission (FCC) licenses authorizing it to use direct broadcast satellite (DBS) and Fixed Satellite Service (FSS) spectrum, its owned and leased satellites, receiver systems, third-party broadcast operations, customer service facilities, a leased fiber optic network, in-home service and call center operations, and certain other assets utilized in its operations. The Sling branded Pay-TV services consist of live, linear streaming over-the-top (OTT) Internet-based domestic, international and Latino video programming services (Sling TV). The Company offers receiver systems and programming through direct sales channels and through independent third parties, such as small satellite retailers, direct marketing groups, local and regional consumer electronics stores, retailers and telecommunications companies.

Written By: Warrior Trading