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Fitch Affirms DISH's IDR at 'BB-'; Removes from Rating Watch Negative; Outlook Stable
[February 27, 2015]

Fitch Affirms DISH's IDR at 'BB-'; Removes from Rating Watch Negative; Outlook Stable


Fitch Ratings affirms the 'BB-' Issuer Default Rating (IDR) assigned to DISH Network Corporation (DISH) and its wholly owned subsidiary DISH DBS Corporation (DDBS). Fitch has also affirmed the 'BB-' rating assigned to the senior unsecured notes issued by DDBS. The Rating Watch Negative on all ratings has been removed. The Rating Outlook is Stable. DISH had approximately $14.5 billion of debt outstanding as of Dec. 31, 2014. A full list of ratings follows the end of this release.

The company's IDR and debt securities were placed on Rating Watch Negative on Feb. 4, 2015 to reflect the uncertainty surrounding DISH's funding strategy and potential negative affect on DISH's credit profile arising from the company's winning bids in the FCC's (News - Alert) AWS-3 spectrum auction. DISH's designated entities made winning bids totaling approximately $13.3 billion in the auction. At the auction closing, the total net remaining payment was $9.1 billion--net of $3.3 billion in bidding credits and a $920 million upfront down payment made prior to the start of the auction in November 2014. The designated entities made a payment of $1.1 billion on Feb. 13 and the final balance of $8 billion is due March 2.

DISH will make debt and equity investments in the SNR Wireless LicenseCo, LLC and Northstar Wireless, LLC designated entities totaling approximately $9.8 billion to fund the spectrum purchases. Of this total, $899 million was contributed during fourth-quarter 2014. DISH's subsidiary, American AWS-3 Wireless I LLC, will also contribute its $400 million refund from the FCC for its upfront down payment made prior to the start of the auction. The remaining approximately $8.5 billion will be funded with cash and marketable securities and free cash flow (FCF). Including anticipated FCF generated during first-quarter 2015, DISH's Dec. 31, 2014 cash and marketable securities balances should provide enough flexibility to maintain the company's stated minimum cash requirement of $1 billion.

KEY RATING DRIVERS

Wireless Strategy Poses Event Risk: The ratings encompass the lack of visibility into DISH's wireless strategy, and the potential capital requirements and execution risk associated with that strategy. Fitch acknowledges the significant asset value and strategic optionality associated with DISH's investment in wireless spectrum. Given the range of options available to DISH, as well as the timing on executing a plan, Fitch treats it as an event driven consideration. In Fitch's view, DISH would need to meaningfully differentiate its wireless services in order for the strategy to successfully diversify its revenues, and to provide for potential cash flow growth. An offering similar to other wireless operators' services would likely struggle to gain traction, given the maturing wireless market and entrenched national operators. Fitch notes that the terms of its wireless spectrum assets require the company to build out a portion of the spectrum coverage area, which can pressure the company's credit profile in the future.

DISH's efforts to transform thus far though various wireless initiatives remain in a development stage. Given the range of options available to DISH, as well as the timing on executing a plan, Fitch treats it as an event driven consideration. The company's strategy has experienced numerous set-backs as the company endeavors to engage another wireless carrier seeking a partnership, acquisition or network-sharing agreement. Event risks remain elevated as the company contemplates additional acquisitions of spectrum or assets to support the wireless strategy. The strategic importance of a wireless broadband service option has not diminished and, as such, Fitch expects DISH will likely continue its efforts to engage an existing national wireless service provider.

Elevated Leverage: Gross leverage rose in 2013 and has remained higher during 2014, as DISH has built cash to fund the wireless strategy. However, leverage remains in line with Fitch's sensitivities for the rating. Fitch believes the higher debt levels, along with elevated execution and integration risks associated with DISH's potential wireless strategy limit the company's financial flexibility at the current ratings level.

Total debt outstanding was approximately $14.5 billion as of Dec. 31, 2014. DISH'sgross leverage totaled 4.9x at year-end 2014, an increase from 4.8x and 4.0x at year-end 2013 and 2012, respectively. The cash proceeds from the company's incremental debt issuances largely remained on its balance sheet at the end of 2014, and will support DISH's wireless spectrum purchases in first-quarter 2015.



Ratings Reflect Weak Subscriber Trends: Fitch believes the company's overall credit profile has limited capacity to accommodate DISH's inconsistent operating performance as the company attempts to transform its branding strategy from a value-oriented service provider to a technology-focused provider targeting high-value subscribers. While subscriber metrics remain weak, average revenue per user (ARPU) has benefited from programming cost increases, higher hardware-related revenue and increased advertising revenue. Pay-TV ARPU increased 4.2% and total revenue grew 5.3% during the year-ended Dec. 31, 2014 versus the prior period.

The company's liquidity position has weakened, as anticipated, given the amount of cash DISH intends to utilize to fund the spectrum acquisition. Overall, the company's liquidity position and financial flexibility is supported by expected FCF generation. The company also benefits from a reasonable maturity schedule, as 40% of the company's outstanding debt is scheduled to mature through 2019 but no more than approximately 10% in any one year. In 2015, $650 million matures.


DISH had a total of approximately $9.2 billion of cash and marketable securities (current portion) as of Dec. 31, 2014. The majority of DISH's consolidated cash and marketable securities balances were held at DISH DBS. DISH DBS held approximately $4.5 billion of the consolidated $4.8 billion cash balance and more than $3.7 billion of consolidated $4.5 billion marketable securities balance as of Sept. 30, 2014. DISH DBS up-streamed an $8.25 billion dividend to DISH during first-quarter 2015 to assist in funding DISH's investment in the designated entities. The company's stated minimum cash requirement of $1 billion and FCF generation mitigate the risk caused by the lack of a revolving credit facility.

DISH's FCF (defined as cash flow from continuing operations less capital expenditures and dividends) generation rose approximately 14% during 2014 to $1.2 billion when compared to the same period during 2013. DISH's capital intensity remained relatively stable in the 8% to 9% range in 2014. Capital expenditures will continue to focus on subscriber retention and capitalized subscriber premises equipment. The higher leverage and weaker operating profile will continue to constrain FCF generation over the ratings horizon.

The current rating reflects additional rating concerns which center on DISH's ability to adapt to the evolving competitive landscape, DISH's lack of revenue diversity and narrow product offering relative to its cable MSO and telephone company video competition, and an operating profile and competitive position that continue to lag behind its peer group. DISH's current operating profile is focused on its maturing video service offering and lacks growth opportunities relative to its competition.

KEY RATING ASSUMPTIONS

In 2015, Fitch expects revenue growth in the low-to-mid single-digits range mainly benefitting from ARPU expansion. Higher programming costs continue to pressure EBITDA margins. FCF generation is expected to be ample, with margins in the mid-to-high single digits. DISH's wireless network investment plans continue to be an uncertainty and are treated as an event driven consideration until the company communicates a defined strategy.

RATING SENSITIVITIES

Although Fitch believes it is unlikely over the near term, a positive rating action will likely coincide with the company articulating a wireless strategy that is executed in a credit-neutral manner and committing to a leverage target below 4x.

Fitch believes a negative rating action will likely coincide with the company's decision to execute a wireless strategy, or other discretionary management decisions that weaken its ability to generate FCF, maintain adequate liquidity to meet ongoing operational needs, erode operating margins, and increase leverage higher than 5x without a clear strategy to deleverage the company's balance sheet.

Fitch has affirmed the following ratings:

DISH Network Corporation

--IDR at 'BB-'.

DISH DBS Corporation

--IDR at 'BB-';

--Senior unsecured notes at 'BB-/RR4'.

Fitch has also removed the Rating Watch Negative. The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

THE ISSUER DID NOT PARTICIPATE IN THE RATING PROCESS OTHER THAN THROUGH THE MEDIUM OF ITS PUBLIC DISCLOSURE

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014);

--'Telecommunications - Ratings Navigator Companion' (Nov. 17, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Telecommunications: Ratings Navigator Companion

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809869

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980543

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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