Moody's may cut PanAmSat, up DirecTV

Moody's Investors Service said it has placed the long-term debt ratings of PanAmSat Corp. (Ba2 senior implied) on review for possible downgrade and the long-term debt ratings of The DirecTV Group Inc. (Ba3 senior implied) and DirecTV Holdings LLC (Ba3 senior implied) on review for possible upgrade.

The reviews follow PanAmSat, and its 80.5% stakeholder, The DirecTV Group Inc.'s announcement of a definitive agreement with Kohlberg Kravis Roberts & Co. for the sale of PanAmSat Corp. at an aggregate value, including the assumption of about $750 million of net debt, of approximately $4.3 billion.

Ratings on review for downgrade include PanAmSat's Ba2 senior implied rating, Ba2 $350 million senior secured term loan, Ba2 $550 million senior secured notes, Ba3 $800 million senior unsecured notes, and Ba3 issuer rating.

Ratings on review for an upgrade include The DirecTV Group Inc. and DirecTV Holdings LLC's Ba3 senior implied ratings, Ba2 $1.012 billion senior secured term loan, Ba2 $250 million senior secured revolver (currently undrawn), B1 $1.4 billion senior unsecured notes, and B2 issuer rating.

The review of PanAmSat's debt ratings reflects Moody's expectation of higher financial leverage of the stand-alone entity after the transaction, assuming the cash portion of the transaction is financed predominantly with debt.

The review will also focus on the company's contract backlog given the new terms of the recent extensions of the contracts DirecTV Latin America and Hughes Network Systems (both subsidiaries of DirecTV Group Inc.).

The review of The DirecTV Group Inc.'s and DirecTV Holdings LLC's debt ratings will focus on DirecTV Group's new management and its plans for allocating more than pro forma $4.5 billion in cash (DirecTV Group Inc. as of year-end 2003 held approximately $1.7 billion in cash, excluding PanAmSat, and expects $2.8 billion in transaction proceeds) among: continuing to fund cash needs at DirecTV Latin America and Hughes Network Systems, to the extent necessary; capital investment and delevering at DirecTV Holdings LLC; and prospective debt reduction.

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