EchoStar execs downplay risk of bankruptcy

Execs at EchoStar appear confident that the company will be able to refinance its coming debt obligations or tap into its valuable spectrum holdings as collateral to avoid a potential fall into bankruptcy.

EchoStar has about $2 billion of debt maturing on November 14, and it confirmed that it currently does not have the necessary cash on hand to fund fourth quarter operations or the coming debt maturity. EchoStar, which ended Q2 with $521 million in cash and cash equivalents, previously warned that its ability to continue as a going concern was in question if it could not refinance its debt or raise more cash.

However, the company is in discussions with outside parties to bridge that gap and is considering using a portion of its spectrum as collateral.

"We continue to make progress and are in constructive discussions with counterparties, which we feel best support our objective," Hamid Akhavan, EchoStar's president and CEO, explained Friday (August 9) on the company's Q2 2024 earnings call.

Akhavan didn't shed much light on the details. "The nature of these discussions require confidentiality. While I cannot provide more detail today, we will have more to share when it's appropriate," he said.

However, those discussions "with funding sources at all levels of our capital structure," company EVP and CFO Paul Orban said.

Spectrum as collateral

Akhavan stressed that EchoStar's spectrum assets are a possible avenue that can provide the company with years of financial runway.

"We can and we will use those as collateral and the fact that we haven't done it yet is because we have not...reached a point that we believe the right deal can be made," he said. "This is a matter of negotiations and progress is being made."

In a note issued after last week's earnings call, New Street Research Analyst Jonathan Chaplin said he believes a pair of entities now at EchoStar – DBSD and Terrestar – that hold AWS-3 licenses offer the most likely scenario. He likewise believes those licenses are worth close to $10 billion.

"We believe the Company should be able to raise close to $3.5BN, which would cover the 2024 maturity plus put close to $1.5BN of new cash on the balance sheet to fund the completion of the network and subscriber growth," Chaplin explained in a note issued after EchoStar's Q2 call.

Akhavan also made it clear that EchoStar has ample spectrum to execute its plans, but has no plans to sell any of it outright.

But the door to other options, such as spectrum trades, aren't off the table. "That's right now not the immediate focus," he said. "The immediate focus is using the spectrum we have potentially as collateral in a prudent way to address our liquidity issues."

Chaplin expects EchoStar to resolve its near-term financial issues one way or another.

"We continue to believe the most likely outcome is that a deal will be reached that encompasses refinancing the $2BN due in November, extending maturities at Dish Network Corp and raising new capital," Chaplin wrote. "If they don't reach an agreement on extending maturities, they should at least raise spectrum backed notes to cover the November maturity plus additional cash."

Bondholder lawsuit not viewed as a barrier

Akhavan also argued that a pending bondholder lawsuit tied to the merger of EchoStar and Dish Network has no bearing on the company's ability to remedy its current financial crunch. New Street's Chaplin points out that some investors fear that if they lend to DBSD and Terrestar, secured by the AWS-4 licenses, the claim against the spectrum could be challenged if the asset transfers are unwound by the outcome of the lawsuit.

While there's a "misunderstanding" that the pending suit prevents EchoStar from making progress on its refinancing activities, "we don't believe that's the case," Akhavan said. "We haven't seen any evidence of that today."

Dean Manson › Chief Legal Officer

"We don't see the need to have that [lawsuit] resolved before November as critical," Dean Manson, EchoStar's chief legal officer, added. "It's not really getting in the way of the discussions that we're having on the refinancing front."