DISH mixed in low-key reaction after failed exchange offer; distressed supply drops

By Cristal Cody

Tupelo, Miss., Feb. 12 – EchoStar Corp.’s paper went out mixed in fairly ho-hum secondary action after the company terminated an exchange offer for the second time in less than two weeks.

DISH Network Corp.’s convertible bonds under Monday’s terminated exchange offer stayed flat to about ¾ point higher in thin trading.

DISH DBS Corp.’s bonds that were part of EchoStar’s bond exchange offer terminated on Jan. 29 traded ½ point lower to 5/8 point better in light activity.

The 5 1/8% senior notes due 2029 (Caa2/CC) were off about ½ point on more than $5 million of volume.

EchoStar announced the expiration and termination of its Jan. 12 offers to exchange approximately $4.9 billion outstanding of convertible bonds in two tranches into new 10% senior secured notes due 2030.

The exchange offers and consent solicitation, conditioned upon criteria that included a majority of outstanding notes being validly tendered, failed to attract the minimum tender conditions before the offers expired on Friday.

On Jan. 29, EchoStar announced the termination of exchange offers and consent solicitations from DISH DBS Issuer LLC for four tranches of senior notes made Jan. 16 before the offers were originally scheduled to expire Monday.

The terminations follow pushback from creditor groups and ratings agencies on EchoStar’s announcements of asset transfers and the exchange swaps soon after closing on the merger with DISH in December.

Bankruptcy chatter has been growing among analysts and market observers, as previously reported by Prospect News.

DISH faces a $3.59 billion payment due April 1 to T-Mobile US, Inc. for its 800 MHz spectrum licenses after paying T-Mobile a $100 million fee in October to delay the total payment, according to a regulatory filing.

Markets were pressured ahead of Tuesday’s release of the January reading of the Labor Department’s widely watched inflation guide, the Consumer Price Index.

The CBOE Volatility index climbed 7.73% to 13.93.

The S&P 500 index slipped 0.09%.

The iShares iBoxx High Yield Corporate Bond ETF fell 17 cents, or 0.22%, to $77.19.

Distressed exchanges up

Distressed bond supply actually is on the decline so far in 2024 after heavy volume in 2023, according to a J.P. Morgan Securities LLC research note released to Prospect News on Monday.

January registered the lowest default/distressed exchange volume at $3 billion since July, down from a monthly average of $7.2 billion in 2023.

“And many of the themes experienced throughout 2023 extended into January with loan volume affected outpacing that of bonds and distressed exchanges remaining a large part of activity,” JPMorgan said.

January saw three companies default on $750 million of bonds and $974 million of loans, while another three companies completed a distressed exchange that impacted $1.2 billion in loans, up from four defaults/distressed transactions in December, according to the note.

Distressed exchange activity has now matched or outpaced actual defaults in nine of the last 10 months with 49 exchanges versus 31 defaults, JPMorgan said.

In all of 2023, 41 companies defaulted on $27.5 billion of bonds and $30.7 billion of loans, and 47 companies completed a distressed exchange totaling an upwardly revised $10.2 billion of bonds and $17.5 billion of loans.

The prior year ended with $85.9 billion of defaults/distressed exchanges, an 83% year-over-year increase and the third largest annual total on record, according to the note.

The number of distressed transactions in 2023 was the highest annual total since 2008, and volume accounted for 32% of total default/distressed activity in 2023, JPMorgan said.

The two years with the largest total default/distressed exchange volumes were 2009’s $205 billion and the 2020 pandemic total of $141 billion.

JPMorgan forecasts a high-yield bond default rate in 2024 of 2¾% and a default rate of 3¼% for leveraged loans.

The high-yield bond and loan issuer-weighted default rates including distressed exchanges have risen 208 basis points and 252 bps year over year to 4.23% and 4.22%, respectively, according to the note.

DISH little changed

The convertible bonds and senior notes in DISH’s terminated exchange offers stayed mostly muted in light trading on Monday, a source said.

DISH Network’s 3 3/8% convertible notes due 2026 (Caa2/CC) were quoted mostly flat at 57¾ bid on just $1 million of volume.

DISH Network’s 0% convertible bonds due 2025 (Caa2/CC) traded up ¾ point to 73¼ bid in a bit more activity that totaled $3 million.

EchoStar’s shares (Nasdaq: SATS) closed down 3.85% to $13 after trading from $12.98 to $13.76 over the day.

In the distressed bond exchange offers canceled in January, DISH DBS had planned to exchange the 5 7/8% senior notes due 2024, 7¾% senior notes due 2026, 7 3/8% senior notes due 2028 and 5 1/8% senior notes due 2029 for up to $3 billion of new secured notes.

The 5 1/8% senior notes due 2029 (Caa2/CC) were off about ½ point at 41 bid by the close on more than $5 million of trading.

DISH’s 7 3/8% senior notes due 2028 improved 5/8 point to 46 3/8 bid on $4 million of volume.

Meanwhile, DISH DBS’ 5¼% senior notes due 2026 (B2/B-) stood out among the company’s most active tranches on Monday, the source said. The bonds went out down ½ point at 79 bid on over $7 million of trading by the close.

Englewood, Colo.-based satellite owner EchoStar also owns companies that include Boost Mobile, Sling TV and HughesNet.

February returns gain

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns softened on Friday to 0.15% from 0.78% on Thursday, 0.58% on Wednesday, 0.29% on Tuesday and minus 0.53% at the start of the prior week.

Month-to-date total returns climbed to 1.07% on Friday from 0.92% in the prior session and negative 0.72% at the week’s start.

Year-to-date total return losses improved to negative 1.1% ahead of the weekend from minus 1.25% on Thursday and minus 2.86% in the Feb. 5 session.

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