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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 -- April 2, 2013

Fitch Ratings has assigned a 'BB-' rating to DISH DBS Corporation's (DDBS)
proposed $1 billion offering of senior secured notes. 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. The Rating Outlook for all of
DISH's ratings remains Negative. DISH had approximately $11.9 billion of debt
outstanding as of Dec. 31, 2012.

Key Rating Drivers

The key rating factors that reflect the rating include:

--Weakening credit protection metrics;

--Lack of visibility and elevated event risks related to DISH's wireless
strategy;

--Strong liquidity and free cash flow generation;

--Inconsistent operating results.

DISH's credit profile has weakened considerably during the course of 2012 due
to inconsistent operating performance and elevating debt levels, which
together with the uncertainty related to the company's yet articulated
wireless strategy, limits its financial flexibility at the current ratings
level. On a pro forma basis (assuming a $1 billion issuance), total debt
outstanding as of Dec. 31, 2012 increased nearly 72% relative to year-end 2011
levels to approximately $12.9 billion. DISH's leverage increased to 4.3x on a
pro forma basis as of Dec. 31, 2012 calculated on a last 12-month (LTM) basis.
The cash proceeds from the company's incremental debt issuances have largely
remained on its balance sheet purportedly to support DISH's wireless strategy.

The Negative Outlook encompasses the lack of visibility as well as the
potential capital and execution risks associated with DISH's wireless
strategy. The economic viability of the strategy is questionable given the
presence of strong entrenched market participants particularly if DISH's
wireless offering fails to provide any meaningful service differentiation from
established competitive offerings. Fitch acknowledges that a wireless network
can potentially provide DISH with further strategic flexibility and enable the
company to diversify its business and capture incremental revenue and cash
flow growth.

Event risks are elevated as the company contemplates additional acquisitions
of spectrum or assets to support the wireless strategy. DISH's wireless
strategy continued to evolve as evidenced by the company's proposal to enter
into a multi-faceted, complicated series of agreements with Clearwire
Corporation. Fitch believes the likelihood of Clearwire accepting DISH's offer
is low. Some of DISH's initial proposal is not likely permitted under the
terms of Clearwire's current legal and contractual obligations. Clearwire's
decision to take advantage of interim financing offered by Sprint Nextel
complicates DISH's offer and further diminishes the probability that DISH's
offer will ultimately prevail. DISH had previously stated it would withdraw
its offer if Clearwire drew on the Sprint Nextel financing.

If the bid for Clearwire is successful, DISH would secure a potential partner
to build and deploy a wireless network. DISH had previously signaled its
preference to participate in 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 has reduced the number of potential entities DISH
can partner with to deploy its wireless network, creating an urgency to
establish a partnership with Clearwire. In accordance with the terms of DISH's
proposal, DISH would acquire, among other things, approximately 24% of
Clearwire's wireless spectrum for $2.2 billion and a minimum of 25% of
Clearwire's outstanding common stock.

The company's liquidity position is strong and supported by cash and
marketable securities on hand and expected, but diminishing free cash flow
generation. Cash marketable security balances, pro forma for the contemplated
senior note issuance, increase to approximately $8.2 billion. 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 generated approximately $601 million of free cash flow (defined as cash
flow from operations less capital expenditures and dividends) during the LTM
ended Dec. 31, 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 nearly $1 billion of
annual free cash flow (before consideration of dividend policy) during the
current ratings horizon while incorporating higher levels of cash taxes.

Fitch believes the company's overall credit profile has limited capacity to
accommodate DISH's inconsistent operating performance. While subscriber
metrics remain weak, they have stabilized somewhat when compared to 2011
results. However, DISH struggles 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 operating margins and EBITDA generation. These factors
contributed to a 16.5% year-over-year decline of DISH's 2012 EBITDA. EBITDA
margin during the current period fell 450 basis points compared to last year,
to 20.9%. Fitch expects margins to rebound somewhat during 2013 as the company
has elected to take a price increase.

Additional 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 Sensitivities

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. In addition, operating metrics, in particular,
subscriber additions, ARPU growth and EBITDA margins will need to begin to
trend positive.

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 5x without a clear strategy to
de-lever the company's balance sheet.

Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
investors.

The issuer did not participate in the ratings process, or provide additional
information, beyond the issuer's available public disclosure.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug.8, 2012);

--'Rating Telecom Companies' (Aug. 9, 2012).

Applicable Criteria and Related Research

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Corporate Rating Methodology

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

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PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
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PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
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OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
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ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst
David Peterson, +1-312-368-3177
Senior Director
Fitch Ratings, Inc.
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, New York, +1-212-908-0549
brian.bertsch@fitchratings.com
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