DISH Network reversed course and killed a plan to swap assets with new parent Echostar in a move that confused Wall Street and outraged its debt holders.
Shortly after Echostar and DISH got back together, the combined company laid out a plan to move some assets — particularly valuable spectrum — into a newly formed subsidiary called EchoStar Wireless Holding. It was a confusing set of moves, one that befuddled some on Wall Street, but it ultimately put those assets out of reach of bondholders in the company. While Echostar’s stock surged on the news, the prices of its bonds plummeted.
Echostar creditors, who own debt in the combined company, weren’t happy, and threatened to sue the company for the move, claiming the asset swap was illegal. Many banded together to take action against the company.
DISH and EchoStar clearly listened. It said that DISH “in its sole discretion” opted to terminate the offer to exchange debt.
The two companies combined late last month to put themselves on better financial footing. DISH still has aspirations to become the nation’s fourth major wireless carrier, but it remains far behind the big three players, Verizon Wireless, T-Mobile, and AT&T. The company also has obligations to continue expanding the coverage of its network throughout the country, having hit 75% of the population last year.
But building a network, particularly one that reaches the last 25% of the country, is extremely costly because there are fewer crowded markets. DISH is sitting on a mountain of debt and still needs additional funding to complete its buildout, or face penalties from the government.