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Fitch Rates DISH DBS' Senior Unsecured Notes 'BB-'; Outlook Negative

  Fitch Rates DISH DBS' Senior Unsecured Notes 'BB-'; Outlook Negative

Business Wire

CHICAGO -- December 20, 2012

Fitch Ratings has assigned a 'BB-' rating to DISH DBS Corporation's (DDBS)
$1.5 billion offering of senior secured notes due 2023. DDBS is a wholly owned
subsidiary of DISH Network Corporation (DISH, Fitch Issuer Default Rating of
'BB-'). Proceeds from the offering are expected to be used for general
corporate purposes including spectrum-related transactions which will support
the company's unspecified wireless strategy. DISH had approximately $10.4
billion of debt outstanding as of Sept. 30, 2012. The Rating Outlook is
Negative.

DISH's credit profile has weakened considerably during the course of 2012 due
to inconsistent operating performance and elevating debt levels. DISH's
leverage was 3.3x on a last 12 month (LTM) basis as of Sept. 30, 2012, which
is over a full turn higher than year-end 2011 measures. Pro forma for the
issuance, DISH's leverage increased to 3.8x as of Sept. 30, 2012, which limits
the company's financial flexibility at the current ratings.

The company's liquidity position is strong and supported by cash and
marketable securities on hand and expected, albeit pressured, free cash flow
generation. Cash marketable security balances, pro forma for the issuance,
increase to approximately $7.9 billion. Fitch expects near term-uses of cash
will include $700 million legal settlement and a $1 per share special dividend
expected to total $450 million. The company also benefits from a favorable
maturity schedule, as the next scheduled maturity is in 2013 totaling $500
million followed by $1 billion during 2014. Fitch notes, however, that the
company does not maintain a revolver, which increases DISH's reliance on
capital market access to refinance current maturities, elevating the
refinancing risk within the company's credit profile. The risk is offset by
the company's consistent access to capital markets and strong execution.

DISH's wireless strategy took a step forward as the company secured FCC
approval to use 40 MHz of S-band wireless spectrum (now designated as the AWS
- 4 band). The FCC order includes power limitations on a portion of DISH's
uplink spectrum and requires DISH to tolerate potential interference from
adjacent wireless spectrum. The order requires DISH to provide reliable signal
coverage and terrestrial service to 40% of its total AWS - 4 population within
four years. The final build-out milestone requires signal coverage and service
to 70% of population in each of its license areas within seven years. If DISH
fails to meet the interim build-out requirement, the final build-out
requirement will be accelerated from seven years to six years. Furthermore, if
the final build-out requirement is not satisfied, DISH's license for each
economic area not in compliance with the final build-out requirement will
terminate automatically.

The Negative Outlook encompasses the lack of visibility as well as the
potential 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. Event risks are elevated as the company contemplates additional
acquisitions of spectrum or assets to support the wireless strategy. Fitch
believes the company will strike a network infrastructure sharing arrangement
to enter into the wireless market as opposed to deploying a greenfield
wireless network. However, recent consolidation, investments, and spectrum
acquisitions within the wireless sector have reduced the number of potential
entities DISH can partner with to deploy its wireless network.

Fitch believes the company's overall credit profile has limited capacity to
accommodate DISH's inconsistent operating performance. DISH lost approximately
19,000 subscribers during the third quarter of 2012 and has gained
approximately 97,000 subscribers during the LTM ended Sept. 30, 2012. DISH is
in the process of re-positioning its brand away from a value proposition to a
more technology and product focus. The challenge is to re-energize subscriber
growth without sacrificing subscriber economics (arguably already weak) or
credit quality. Key to a successful transition will be the company's ability
to reduce churn while introducing new products and services valued by
subscribers that are not easily replicated by the competition.

DISH continues to struggle to increase service ARPUs as the company elected
not to take a price increase during 2012. This decision combined with higher
programming and subscriber acquisition costs has had a dramatic effect on the
company's cash flow generation. Lower pre-SAC cash flow combined with a 14.7%
increase in subscriber acquisition costs led to an 18.7% year-over-year
decline in DISH's third-quarter EBITDA. EBITDA margin during the current
period fell 400 basis points compared to the third quarter of last year, to
19.9%, which unfavorably compares to DIRECTV's reported EBITDA margin of 23%.

DISH generated nearly $857 million of free cash flow (defined as cash flow
from operations less capital expenditures and dividends) during the LTM ended
Sept. 30, 2012. Fitch expects capital intensity will be relatively consistent
over the near term and that capital expenditures will continue to focus on
subscriber retention and capitalized subscriber premises equipment. Absent
further investment in a wireless network or other strategic initiative, Fitch
anticipates that DISH will continue generating relatively stable levels of
free cash flow during the current ratings horizon while incorporating higher
levels of cash taxes.

Rating concerns 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.

Rating Triggers

Revision of the Outlook to Stable at the current rating level can occur as the
company demonstrates that it can execute its wireless strategy in a
credit-neutral manner.

Fitch believes 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 free cash flow, erode operating
margins, and increase leverage higher than 4x without a clear strategy to
de-lever the company's balance sheet.

Additional information is available at 'www.fitchratings.com'. The issuer did
not participate in the ratings process, or provide additional information,
beyond the issuer's available public disclosure. The ratings above were
unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Rating Telecoms Companies' (Sept. 16, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Contact:

Fitch, Inc.
Primary Analyst
David Peterson, +1-312-368-3177
Senior Director
70 W. Madison,
Chicago, IL 60602
or
Secondary Analyst
John Culver, CFA, +1-312-368-3216
Senior Director
or
Committee Chairperson
Michael Weaver, +1-312-368-3156
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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