Fitch Affirms Echostar's IDR at 'BB-'; Conv Sub Notes at 'B'; Outlook Stable.
CHICAGO -- Fitch affirms the 'BB-' Issuer Default Rating (IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) assigned to Echostar Communications Corporation EchoStar Communications Corporation (NASDAQ: DISH) is the parent company of DISH Network and the maintainer of the satellite fleet that provides the signal that DISH Network markets. (Nasdaq: DISH) (Echostar)and its wholly owned subsidiary Wholly Owned Subsidiary
A subsidiary whose parent company owns 100% of its common stock.
In other words, the parent company owns the company outright and there are no minority owners. Echostar DBS (Direct Broadcast Satellite) A one-way TV broadcast service from a communications satellite to a small round or oval dish antenna no larger than 20" in diameter. Corporation (EDBS EDBS External Dosimetry Badge System
EDBS Engineering Data Bank System ). Fitch has also affirmed the 'BB-' rating assigned to the senior unsecured notes issued by EDBS Corporation. Finally, Fitch has affirmed the 'B' rating assigned to the convertible subordinated notes issued by Echostar. Approximately $7.0 billion of debt as of the end of the third quarter of 2006 is affected by Fitch's action. The Rating Outlook is Stable.
Fitch's affirmation reflects the operating leverage Operating Leverage
A measurement of the degree to which a firm or project relies on fixed rather than variable costs.
The higher the degree of operating leverage, the greater the potential danger from forecasting risk. derived from Echostar's size and scale as the fourth largest multichannel video programming distributor A Multichannel Video Programming Distributor (MVPD) is a service provider delivering video programming services, usually for a subscription fee. These operators include cable television (CATV) systems, direct broadcast satellite (DBS) providers, and wireline video providers, in the United States; the company's solid liquidity position, and expectation for continued free cash flow generation.
Fitch's ratings also incorporate Echostar's weak competitive position and limited ability to respond to the changing and more competitive operating environment. From Fitch's perspective competitive pressures within the multi-channel video distribution market have increased due to the wide spread availability of the triple play service offering and the introduction of video services by the regional bell operating companies, namely Verizon and AT&T. Fitch believes that demand for Echostar's video service will remain strong within certain segments of the multi channel video distribution market. However, the evolving competitive landscape will materially increase the business risks related to Echostar's credit profile. Outside Echostar's core market segments the company will find it increasingly difficult to protect and grow its market share in the face of the bundled service offerings by the cable MSOs and telephone companies in residential markets.
A key to Echostar's continued EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become growth and free cash flow generation will be how the company balances subscriber growth, ARPU (Average Revenue Per User) A calculation often used to determine the overall value of an application. It is also used to rate particular customers, especially in the wireless space, by comparing someone's account to the overall average. , subscriber churn and subscriber acquisition costs. Fitch believes that a more competitive multi-channel video distribution market can lead to higher subscriber churn rates subscriber acquisition costs, and pressure on the company's ARPU. These factors can limit EBITDA growth and constrain operating margins. During the third quarter of 2006 Echostar's subscriber acquisition cost (SAC) was $688 per gross addition. Fitch believes that competitive pressures can push Echostar's SAC in excess of $700 during 2007.
Echostar's competitive position is hurt by its lack of a broadband solution. Currently, the company's broadband strategy is centered on its ability to bundle DSL DSL
in full Digital Subscriber Line
Broadband digital communications connection that operates over standard copper telephone wires. It requires a DSL modem, which splits transmissions into two frequency bands: the lower frequencies for voice (ordinary service through AT&T and other incumbent local exchange providers. Fitch believes that for competitive purposes an investment in a broadband network is appropriate. However, the capital costs associated with a high speed data network will be significant and would certainly pressure Echostar's credit profile if the company elects to deploy the network without using partners to mitigate financial and technical risks. Over the near term Fitch believes Echostar will compete for video subscribers by aggressively deploying high definition programming. Echostar does have a leading position among multi-channel video distributors with 30 national HD channels. However Echostar is lagging behind most cable MSOs by only providing local channel HD programming in only 26 cities. Moreover, Echostar's HD lineup does not include any of the regional sports networks.
The company's leverage metric, calculated on a latest 12 month (LTM LTM
long-term memory ) basis, as of September 30, 2006 was 3.04 times (x) on a consolidated basis and 2.4x at EDBS. Absent a material investment in a broadband network, Fitch expects that Echostar's credit protection metrics will continue to improve during 2007 with leverage improving a half turn from the Sept. 30, 2006 level and free cash flow as a percentage of total debt in excess of 8%. Since the end of the third quarter the company has made substantial progress in addressing its 2008 scheduled maturities, which as of the end of the third quarter totaled $2.5 billion. During October, the company issued $500 million of senior notes due 2013 and used the proceeds thereof to redeem its floating rate senior notes due 2008. Additionally on Jan. 17, 2007, the company announced that it will redeem all of its outstanding 5.75% convertible subordinated notes due 2008 on February 15, 2007. The redemption will initially be funded with cash on hand. Echostar's liquidity position is strong and is primarily supported by approximately $2.8 billion of restricted and unrestricted cash, and marketable investment securities on its balance sheet as of Sept. 30, 2006 and free cash flow expectations.
Fitch's Stable Rating Outlook reflects the consistent subscriber economic trends as well as the positive EBITDA and free cash flow prospects expected over the near term balanced with the very competitive operating environment. Outside of the announced share repurchase Share Repurchase
A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. authorization Fitch views the use of cash for shareholder friendly actions as an erosion of financial flexibility that could result in pressure on the ratings or an outlook revision. Additionally, Fitch has concerns related to the uncertainty surrounding the company's broadband strategy and the potential cash requirements to launch a wireless broadband service. Lastly, incorporated into the current ratings and Stable Rating Outlook is the expectation that the ongoing litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. related to Tivo, Inc. is resolved in a credit neutral manner and without significant operational disruption.
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