Moody’s: Dish Spectrum Buys Could Affect Credit

Financing Buys With All Cash Could Lower Debt Rating
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Moody’s Investor’s Service said that Dish Network’s aggressive bidding in the AWS-3 wireless spectrum auctions could affect its credit ratings.

Dish actually bid about $13.3 billion for the licenses, but because it bid mostly through designated entities, it received a discount of 25%, putting it on the hook for about $10.4 billion.

While some FCC commissioners criticized Dish for using DE’s to bid on the licenses, Moody’s said that the sheer size of the bidding could result in lower credit ratings and therefor more expensive access to capital for the satellite giant.

In a statement, Moody’s senior vice president Neil Begley said depending on how Dish finances the bids; it could negatively impact its Ba3 Corporate Family rating and SGL-1 speculative grade liquidity rating.

Dish hasn’t said what its obligations are under the auction nor how it would fund its bids. Moody’s anticipates when anti-collusion rules expire in about 10 business days after the close of the auction; the company will announce its obligations and funding intentions.

"The company could move forward with a number of options, including selling or licensing the spectrum, independently launching its own wireless service and competing as the nation's fifth major player in the wireless telecommunications space or partnering with or acquiring or merging with another wireless carrier like T-Mobile," Begley said in a statement. "In our view, a tie-up with an existing wireless carrier or a company with significant capital resources is the only possible strategy that could give Dish a chance of success in the wireless arena, and management has publicly stated its desire to do so."

If Dish funds its AWS-3 spectrum purchase with cash on hand (which amounts to about $10 billion, including marketable securities), Moody’s believes uncertainty
surrounding strategic plans and future impact on its balance sheet will continue to weigh on Dish's credit ratings. Excluding any additional financing, Dish DBS's gross debt-to-EBITDA leverage, was 4.7x as of Sept. 30 (incorporating Moody's standard adjustments). The company's ratings would come under pressure if it engages in acquisitions and investments that increase gross leverage to more than 5.5 times.

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