(Bloomberg) -- Dish Network Corp. creditors rejected the US satellite-television provider’s bond-exchange offer, as the deadline arrives for a debt deal that is key to the company’s proposed acquisition by rival DirecTV.
The steering committee of Dish lenders made its case to a wider group of bondholders on Monday, calling the deal one of the largest “engineered at the expense of creditors,” according to a letter seen by Bloomberg. They also reminded the investors of an obligation to stick together under a cooperation pact.
“This group has roundly and resolutely rejected the latest proposed exchange offer,” according to the letter. A sweetened proposal on Oct. 29 lowered the minimum loss on $8.9 billion of bonds by $70 million to $1.5 billion, and the acceptance deadline was extended to 5 p.m. New York time Tuesday.
Milbank and Lazard, which are representing the creditor group, did not respond to requests for comment, and neither did a representative for Dish.
Meanwhile, Dish parent EchoStar Corp. on Tuesday morning announced that holders of $4.7 billion of convertible notes — over 96% of the amount outstanding — agreed to exchange their debt in a move that will extend maturities and cut the face value outstanding. EchoStar added that it used about $2 billion of capital from TPG Angelo Gordon and co-investors to pay a maturing note.
Dish and DirecTV agreed to merge in late September to create the largest US pay-TV provider under the control of private equity firm TPG Inc., a move touted as a way for both to better compete in an increasingly crowded TV landscape disrupted by streaming. TPG would buy the rest of DirecTV it didn’t own and then acquire Dish Network for $1 dollar plus debt assumption.
“If the deal were to be consummated – and this is a deal that was teased for years, and which underpins the investment thesis of many holders of the DBS bonds – EchoStar and Ergen would receive a windfall totaling billions of dollars. And DIRECTV would acquire the DBS assets for literally one dollar,” the steering committee lenders wrote in the letter.
Dish Network and its creditors are also currently engaged in a court battle over the transfer of valuable assets, including a handful of wireless spectrum licenses, out of the reach of creditors. The steering committee said in the letter that it is confident in the merits of the litigation and that the recent transactions strengthen the case.
The letter doubled down on the steering committee’s position that EchoStar Chairman Charlie Ergen has sought to extract billions of dollars of value for himself and said the fate of a merger now laid with him.
“He stands to gain mightily if we can achieve a fully consensual merger transaction that respects bondholders’ rights, including major debt relief and improved financing flexibility for EchoStar,” the letter said. “None of these benefits will be possible if he fails to re-engage with our group. It is ultimately his decision whether he wants to seek a negotiated solution that maximizes value for all stakeholders or continue to answer for his brazen conduct in court.”
(Adds EchoStar convertible-note swap results and note repayment in the fifth paragraph.)
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