(Bloomberg) -- Creditors to US satellite television firm Dish Network plan to block a distressed exchange that’s a key part of its tie-up with rival DirecTV, according to people familiar with the matter.
A group of steering committee investors has gained a blocking position in order to negotiate with the company, the people said. They may even explore a better outcome through litigation, said some of the people.
Creditors are banding together after Dish and DirecTV agreed on Monday to create the biggest US pay-TV provider under the control of private equity firm TPG. Before the plan can go ahead, Dish needs consent from its bondholders to exchange old debts for notes issued out of the new combined entity.
The debt restructuring plan would leave bondholders with nearly $1.6 billion of losses, after imposing haircuts as high as 40% of face value.
Representatives at Dish and its advisers didn’t respond to messages. Those at Lazard Inc. and Milbank LLP, which are advising the group of investors, were also not available.
Bondholders are demanding new covenants that would protect them if the deal is rejected by regulators. If it goes ahead, they’re seeking safeguards against downside earnings, operational risks and aggressive debt maneuvers, said the people.
Those who support the restructuring point out that Dish is providing a coupon bump to consenting lenders and a premium to market trading levels before the deal was announced. The combined entity will also carry less debt, have higher ratings and generate more cash, according to these people who also declined to be identified because the discussions are private.
As speculation around a Dish-DirecTV merger swirled, Dish bonds rallied last week on the hopes that a deal would be favorable to creditors. Though they’ve since given back some gains, some of the bonds are still trading above the proposed exchange price, which is where investors see a chance for sweetened terms.
For instance, Dish 7.375% notes due 2028 are trading at around 76.25 cents, according to Trace pricing data. Under the proposal, those bonds would ultimately be swapped into DirecTV notes issued at 68 cents on the dollar.
To form a creditor bulwark, most holders of the $9.7 billion of debt involved in the restructuring plan to extend their cooperation agreement by more than a year to 2026, Bloomberg previously reported.
The latest stand-off punctuates an acrimonious year for founder Charlie Ergen and creditors to Dish and parent EchoStar, who are owed $20 billion as the pay-TV provider faces a flight of subscribers.
In January, EchoStar riled investors when it moved its crown-jewel wireless spectrum licenses — among other assets — out of their reach. Weeks later, it scrapped plans for two transactions that would have restructured billions in debt after they faced creditor backlash.
Creditors eventually sued over the asset transfer move. Under the current debt restructuring proposal, consenting creditors would give up their rights to sue Dish and release it from liabilities, said some of the people.
Besides the spectrum transfers, disgruntled lenders have also taken issue with intercompany loans and sizable cash outlays taken by Ergen. The merger proposal also gives the chairman the chance to collect another $1.5 billion.
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