Hughes higher on expected loan repayment, refinancing; Charter up on operating changes

By Sara Rosenberg

New York, Dec. 10 - Hughes Electronics Corp.'s bank debt improved slightly following news that the merger with EchoStar Communications Corp. was terminated as investors are now looking forward to Hughes refinancing and repaying part of its new credit facility. Charter Communications Inc. also improved over the course of the day as the company announced plans to improve its operating structure.

Hughes Electronics loan traded up to par on Tuesday, compared to Monday's level of trading right below par, a trader told Prospect News.

The recently obtained $1.93 billion credit facility (Ba3) consists of a $1.28 billion revolver and a $650 million term loan B, all due on Aug. 31, 2003. Bank of America and Salomon Smith Barney are the lead banks on the deal.

The trader explained that Hughes Electronics' relatively new credit facility, which broke in the secondary towards the end of November at 99 5/8 to 99 7/8, would be undergoing some changes now that the merger is no longer taking place.

"A good portion is being refinanced," the trader said, adding that there are lots of moving parts to the facility at the present time.

In addition, a second trader said that the term loan B is basically going to be taken out by the $600 million in cash that EchoStar has paid Hughes under the terms of the agreement. The agreement's terms also specify that Hughes will retain its 81% ownership position in PanAmSat.

PanAmSat's bank debt was quoted around 95 bid, 96 offered on Tuesday.

The merger with EchoStar could not be completed within the time allowed by the merger agreement due to The Department of Justice, 23 states, the District of Columbia and Puerto Rico taking action to block the merger and the Federal Communications Commission's decision to send the merger application to a hearing.

"We are appreciative of all the support we received and the opportunity to present the merger proposal to regulators. Obviously, we are disappointed in the final outcome. However, EchoStar will continue to seek alternative, innovative ways to provide competition to the rapidly consolidating cable industry and to provide more choices for all consumers," said Charles Ergen, EchoStar's chairman and chief executive officer, in a news release.

"We continue to believe that the proposed merger would have been a victory for consumers nationwide, and for our shareholders. We worked hard on it to get the required regulatory approval and are disappointed that we were not able to complete the merger," said Jack A. Shaw, Hughes' president and chief executive officer, in the release. "However, since the merger couldn't be completed, we concluded that this settlement is the best alternative for Hughes and places us in the best position to move ahead with our business."

Hughes is an El Segundo, Calif. provider of digital entertainment, information and communications services and satellite-based private business networks. EchoStar is a Littleton, Colo. provider of direct broadcast satellite programming services and products. PanAmSat is a Wilton, Conn. global facilities-based provider of video, broadcasting and network services through satellites.

Charter Communications's bank debt saw an upward move in both the bid and the offer. The paper was quoted with a mid-85 bid and an 87 to 88 offer, according to a trader. Previously, the bank debt was quoted with a bid closer to the 85 level and an offer that was more in the 86 range.

The bonds were up about a point on the day and the bank debt was basically following suit, according to the trader.

"The company is starting to rationalize and consolidate," the trader added in explanation of why the company's debt was trading up.

On Tuesday, Charter announced changes to its operating structure that "will improve customer relationships, eliminate redundancies, provide alignment around common goals and enhance communications," a news release said.

The company plans to consolidate operations into five geographically clustered divisions. Each division head will report to the newly appointed executive vice president of operations, Margaret A. Bellville.

Workforce reductions are expected to be significant. Estimated savings from this streamlining will be announced along with fourth-quarter results in Feb. 2003, according to the release.

"Having rebuilt and upgraded about 87 percent of our plant, it's necessary now to identify and capitalize on efficiencies in our operating organization," said Carl Vogel, president and chief executive officer, in the release. "These changes are the result of an internal review of every department, staff and group within Charter's organizations during the last two months. This flattened organization will eliminate management layers and reduce redundancy, allowing decisions to be made closer to the customer and resulting in streamlined operations, improved communication and more effective execution.

"It is very important that we complete this restructuring as soon as possible so we can focus our attention on our customers," Mr. Vogel added. "It is our expectation that the large majority of the restructuring will be completed within the first quarter of 2003."

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