Fitch: DISH Settlement has Neutral Credit Impact
NEW YORK -- October 22, 2012
The agreement entered into by subsidiaries of DISH Network Corporation (DISH),
Cablevision Systems Corporation (CVC), and AMC Networks, Inc. to settle a
lawsuit concerning a wrongful termination of an affiliation agreement entered
into by the parties will have a neutral impact on the companies' respective
ratings, according to Fitch Ratings.
DISH has agreed to pay a cash settlement totaling $700 million to CVC and AMC
Networks, Inc., of which $80 million will be used to purchase CVC's
multichannel video and data distribution service (MVDDS) licenses in 45
metropolitan areas in the U.S. DISH will also deliver its 20% membership
interest in VOOM HD Holdings LLC to a subsidiary of AMC Networks, Inc.
Also as a result of the settlement, DISH and AMC Networks, Inc. have entered
into a new long-term distribution agreement to carry AMC, IFC, Sundance
Channel, and WEtv. And DISH has also agreed with The Madison Square Garden
Company to carry Fuse on its network.
Our issuer default rating (IDR) for DISH is 'BB-' with a Negative Rating
Outlook while CVC's IDR is 'BB-' with a Stable Rating Outlook.
We believe that DISH has sufficient liquidity and financial flexibility to
satisfy the terms of the settlement without materially weakening the company's
credit profile. We estimate that DISH has approximately $5.8 billion of total
liquidity available on a pro forma basis (as of June 30, 2012) consisting of
approximately $3.6 billion of cash (adjusted for the $1.0 billion issuance in
July 2012) and $2.2 billion of short-term investments. The company also
benefits from a favorable maturity schedule as the next scheduled maturity is
in 2013 totaling $500 million.
DISH's Negative Rating Outlook encompasses the capital and execution risks
associated with DISH's wireless strategy. While DISH has yet to fully
articulate its wireless strategy, the company has committed over $3.5 billion
of capital to acquire wireless spectrum. We believe the incremental capital
and operating costs associated with a potential wireless network build out
will diminish DISH's ability to generate free cash flow, erode operating
margins resulting in a weaker credit profile, and pressuring the ratings. We
believe the business risk inherent in launching a wireless business limits the
flexibility the company has to increase leverage at the current ratings to
accommodate the incremental capital costs and EBITDA erosion associated with
the launch of a wireless network. Construction of a stand-alone wireless
network would have additional negative rating implications.
The settlement is a positive event for CVC and will serve to boost the
company's overall liquidity position. We anticipate that proceeds from the
settlement agreement will be distributed to subsidiaries of CVC and AMC
Networks, Inc. in accordance with the agreements entered into between the two
companies calling for an equal share of the proceeds.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
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companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
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David Peterson, +1 312-368-3177
Corporates, Telecom and Cable
70 W. Madison Street
Chicago, IL 60602
John Culver, CFA, +1 312-368-3216
Corporates, Telecom and Cable
Kellie Geressy-Nilsen, +1 212-908-9123
One State Street Plaza
New York, NY 10004
Brian Bertsch, +1 212-908-0549
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