S&P places Hughes Satellite on watch

S&P said it placed all its ratings for Hughes Satellite Systems Corp., including the BB issuer rating, on CreditWatch with negative implications.

Hughes Satellite Systems announced it plans to merge with DISH Network Corp. in an all-stock transaction.

“Hughes will become a wholly owned subsidiary of DISH Network. Following the transaction, we believe DISH will likely funnel Hughes' balance sheet cash and future cash flows to limit its cash burn. We anticipate the combined entity's credit metrics will also be materially worse than Hughes' metrics on a stand-alone basis, with leverage of about 10x.

“Additionally, despite Hughes' annual free cash flow generation of $250 million-$300 million, we would still expect the combined entity to generate negative cash flow,” S&P said in a press release.

The negative watch indicates S&P may slash Hughes’ ratings to CCC+ once the deal is completed, the agency said.

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