PrimeStar Bondholders Hold Out

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PrimeStar Inc. last week extended until March 15 the
deadline for its tender offer to purchase its 10.875 percent senior subordinated notes.

The announcement pointed to lingering discontent among
bondholders over PrimeStar's bid to buy back those bonds at 67 cents on the dollar
and to purchase its 12.25 percent senior subordinated discount bonds for 47 cents on the
dollar.

There's widespread belief that PrimeStar will have to
beef up its offer in order to help close a pending asset sale to competing
direct-broadcast satellite provider DirecTV Inc. DirecTV's deal to purchase
PrimeStar's 2 million-plus subscribers calls for PrimeStar to buy back at least 90
percent of its bonds.

In a closely related deal, PrimeStar agreed to sell DirecTV
the high-power satellite assets controlled by Tempo Satellite Inc., including two
high-power satellites and 11 full-CONUS (continental United States) transponders at the
119 degrees west longitude orbital position.

At a DBS conference presented by The Carmel Group last
month, DirecTV president Eddy Hartenstein said it's entirely up to PrimeStar's
owners to improve its deal with the bondholders.

Where the extra money to pay off the bondholders would come
from is still in question. But the belief that the money will be found is so strong, some
financial analysts said, that the bonds have been trading at above 67 cents recently, even
though they had fallen as low as 30 cents in previous months.

Some Wall Street analysts believe that EchoStar
Communications Corp. chairman and CEO Charlie Ergen bought a hefty share of the bonds when
they were trading at their lowest, and that he is now in a position to wreak havoc on
PrimeStar's negotiations with its bondholders and with DirecTV.

A spokesman for EchoStar would neither confirm nor deny
published reports that Ergen held 10 percent of the PrimeStar bonds, which would
effectively give him veto power over DirecTV's agreement with PrimeStar, at least as
it's currently written.

EchoStar did confirm late last month that it had sent a
letter to PrimeStar expressing its intent to bid $600 million for Tempo's high-power
assets. At press time, EchoStar had not submitted a formal bid.

Analysts speculated that Ergen may be sincere in his desire
for the coveted real estate at 119 -- that's where his core service is already
located -- or that he may be trying to force DirecTV into a bidding war, thus driving up
expenses for his competitor. Either way, Ergen wins, most analysts believe.

For their part, both DirecTV and PrimeStar have tried to
deflect rumors of a bidding war.

"We've got a binding deal with DirecTV,"
PrimeStar president Dan O'Brien said. "The owners of PrimeStar and DirecTV still
want to do this deal."

Some analysts believe that DirecTV and parent company
Hughes Electronics Corp. are already so invested in the deal with PrimeStar and in keeping
additional spectrum out of the hands of EchoStar that they'd be willing to kick in
additional funding if needed.

"If Charlie [Ergen] ended up with the spectrum,
he'd take over the world," said Bob Berzins, senior vice president of high-yield
research with Lehman Bros. Inc. "There are powerful motivations for both EchoStar and
DirecTV to acquire this spectrum."

Mickey Alpert, president of Washington, D.C.-based Alpert
& Associates, said EchoStar would save the cost of repointing millions of satellite
dishes if it could keep its core service at 119 degrees.

DirecTV, on the other hand, needs to have additional
spectrum available as soon as local-to-local legislation passes, Alpert added.

PrimeStar's cable owners could be pressured to come up
with money for the bondholders to avoid a threatened lawsuit. If PrimeStar's deal
with DirecTV falls through, the PrimeStar bondholders might have to wait two years to see
how a lawsuit plays out in court.

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