EchoStar-owned Dish slowed total pay TV subscriber losses in Q3, but net gains at virtual MVPD Sling TV and lower churn at Dish TV couldn’t totally offset continued declines for gross activations of its satellite-delivered Dish TV. The Q3 results came as Reuters separately reported that a group of EchoStar Dish bondholders have rejected a debt exchange offering that’s key to the planned merger of Dish with DirecTV.
*Update: As reported by Bloomberg Tuesday evening, DirecTV intends to terminate the planned acquisition of Dish by November 22 if bondholders don't agree to a debt swap. The amended Oct. 28 exchange offer from EchoStar expired last evening, November 12. Reached by StreamTV Insider, a DirecTV spokesperson provided the following statement:
"A successful exchange was a condition for acquiring the DISH video business. Given the outcome of the EchoStar exchange, DIRECTV will have no choice but to terminate the acquisition of DISH by midnight on November 22," DirecTV stated.
Q3 results
In total Dish lost around 43,000 net pay TV subscribers in the quarter for a base of 8.03 million across Sling and Dish TV. Its fewer than the 104,000 net pay TV losses Dish reported in Q2, which it ended with 8.07 million subscribers. The Q3 total includes 2.14 million Sling TV subscribers, which increased by 145,000 in the period, compared to 117,000 net additions in the same quarter a year ago. Dish TV subscribers at the end of Q3 totaled 5.89 million customers, negatively impacted by fewer gross additions in the period. Dish TV gross additions totaled around 75,000, compared to 142,000 a year ago, or a decrease of 47.2% yoy. Dish attributed the decrease to a lack of demand, shifting consumer behavior and increased competitive pressures.
The Q3 churn rate at Dish TV did improve to 1.47%, compared to 1.58% in the same period a year ago.
The pay TV business generated $2.6 billion in revenue in the quarter, down 6.3% compared to Q3 2023.
Third quarter results came as parent EchoStar is undertaking a balance sheet restructuring that involves a series of transactions, including plans to merge the Dish and Sling TV pay TV businesses with DirecTV.
‘No man’s land’ as bondholders rebuff debt exchange offer
On Tuesday’s earnings call, EchoStar CEO and President Hamid Akhavan said that it secured financing to meet a November debt maturity and reached an agreement with a group of convertible noteholders.
DirecTV, along with private-equity firm owner TPG, is one of the parties involved in extending $2.5 billion in financing to EchoStar to pay certain debt maturities, interest and other operating needs, as part of a multi-step transaction. Debt-laden EchoStar also operates a wireless retail business via Boost Mobile through its acquisition of Dish and is building out a 5G network.
“This last transaction provides approximately $5.2 billion in additional financing and extends payment terms for the existing convertible notes tendered,” Akhavan said in a statement. “In addition, we agreed to sell our pay-TV business to DirecTV, subject to successful completion of an ongoing exchange and other closing conditions."
The deal with DirecTV involves an assumption of debt – and if completed would reduce EchoStar’s consolidated debt by approximately $11.7 billion – but is subject to sign off of a debt exchange offering by EchoStar Dish bondholders, which it apparently hasn’t secured. The proposed and reportedly rejected offer would have seen bondholders exchanging debt for new debt in the merged entity at a discounted rate, meaning the need to accept a swap that includes a so-called “haircut” of abut $1.57 billion on the debt.
Per Reuters, the group represents 85% of Dish’s bondholders. The exchange offering expired at 5 pm EST today, Tuesday November 12.
Adam Rhodes, senior research analyst at Octus (formerly Reorg) affirmed to StreamTV Insider that it’s the firm’s understanding that as of Monday night, the ad hoc group of DBS noteholders planned to reject DirecTV’s amended October 28 offer.
In an October 29 research note, Rhodes previously pointed out that while DirecTV negotiated the acquisition with EchoStar, “the exchange conditions under the agreement pit DirecTV in a direct negotiation with the DBS noteholders.”
“Under the terms of the agreement, DirecTV has the right to terminate its acquisition if the DBS noteholders do not accept the DBS exchange offer ‘on terms satisfactory to DirecTV,’” wrote Rhodes last month. “This includes the extent to which the exchange fails to achieve its required ‘Acquisition Consent Threshold Condition,’ which includes a requirement that, upon the DirecTV acquisition, the exchange offer results in a minimum principal reduction of the outstanding DBS notes. This minimum principal reduction amount was $1.568 billion in the initial exchange offer and lowered to $1.499 billion in the Oct. 28 amended exchange offer.”
Per the research note, DBS bondholders have asserted that DirecTV and DBS have excluded them in negotiations and indicated that EchoStar is asking them to voluntarily forfeit over $1.5 billion in value they’re owed.
That said, Octus believes that closing the DirecTV deal “is in the best interest of all transaction parties, including dissenting DBS noteholders.”
“A failure to consummate the DirecTV transaction leaves the DBS notes at a credit box with less credit support and earnings power going forward,” wrote Rhodes in late October.
According to Rhodes Tuesday via email with StreamTV Insider, the exchange offer, as amended, “implied a minimum average principal participation level requirement of 95% across each series of DBS notes,” a level which it doesn't appear to have captured, with DirecTV holding the right to terminate.
Rhodes said that given prior comments from DBS bondholders, “it is not surprising” to see them reject the October 28 proposal.
So where does the deal potentially stand now?
“At this point, it appears that we are in a bit of no man’s land,” Rhodes commented Tuesday. “The DirecTV equity purchase agreement provides for a Nov. 12 final exchange extension deadline, so a further extension would require an amendment to the document.”
While timing is currently uncertain, the analyst thinks it would be surprising if the sides don’t eventually reach an alternative agreement, saying “a number of levers likely exist to close the gap.”
“I continue to believe that, in time, an agreement between the three parties will be reached,” Rhodes told StreamTV Insider. “Closure of the deal is in the best interests of all transaction parties.”
Rhodes also noted EchoStar leadership expressed confidence in operating and growing the company regardless, but was hopeful the exchange offering would close.
Commenting on Tuesday’s earnings call about a DirecTV-Dish merger, EchoStar’s Akhavan in opening remarks said the combined pay TV company would benefit consumers by providing more choice and better value in a competitive video market, but acknowledged the sale of the video business will take time and suggested the company is now better positioned in the case a deal doesn’t go through. Assuming the related exchange offer is successfully completed, it anticipates the Dish-DirecTV deal would close in late 2025.
“While we are hopeful the DBS exchange will be successful, we now have a more robust foundation to operate and grow EchoStar’s business independent of the exchange outcome,” Akhavan commented
Asked on the earnings call by equity analysts if, for the sake of argument, bondholders dig in their heels and the DirecTV-Dish deal doesn’t happen, whether EchoStar would be able to continue to use the $5.2 billion in financing it secured and free cash flow from DBS to continue to fund the build out and marketing of its wireless business, Akhavan indicated yes.
“If the exchange does not close successfully, we’ll continue to operate our business,” the CEO said, while declining to get into specific business-related cashflows.
“For us, you know, whether the [DirecTV-Dish] transaction closes or not, we do have a path forward now with the cash available to us from other sources that we have put on the balance sheet, we certainly can develop the business regardless of the developments that happen at DBS,” Akhavan continued.
Article updated with DirecTV plans following rejection of the exchange offer.