Moody’s Investor Services downgraded Dish’s corporate family rating due to an overall need for capital to refinance and repay debt and deleverage the company as revenues shrink due to secular industry pressure on satellite and Sling TV.
It also cited the build out and startup costs of the company’s planned state-of-the art 5G U.S. wireless Internet of Things (IoT) broadband network — until it secures a material equity investment or partner.
The downgrade follows the satellite broadcaster raising $1 billion in a sale of senior unsecured debt that Moody’s said it will put towards a $2 billion principal payment due in July.
The agency said the downgrade – with stable outlook — concludes a review started a year ago on the company’s debt level and after an agreement reached by DISH, the Department of Justice, T-Mobile USA and Sprint (which T-Mobile acquired) to acquire Sprint’s prepaid wireless service businesses and wireless spectrum assets.
On pay TV, satellite video still generates roughly $1 billion of free cash flow annually, but cash flow, along with revenue and operating income (EBITDA), have been steadily declining since 2016. While DBS management has done a good job at containing subscriber losses, particularly compared to rival DirecTV the underlying subscriber numbers point to a steady secular decline in linear video revenues, Moody’s said.
The March quarter was also the first that OTT service Sling TV lost subscribers. Sling’s president Warren Schlichting left soon after the quarterly report.
“Sling’s business model is an ad-based model, but we believe that it can only prove successful if it can reach scale which in our view will prove challenging without an industry shake out of some of Sling’s virtual MVPD competitors. Over the longer term, Sling faces the same pressures that the satellite pay TV business faces unless network affiliate costs are contained or it can go full network a-la-carte.” Moody’s said.
And on wireless, Moody’s noted that over the years, DISH has spent more than $21 billion to acquire a significant amount of wireless spectrum and has options to acquire more. The company has estimated that it will need $10 billion to complete the national 5G build out, which the agency said seems unrealistically low.
Dish’s $1.4 billion acquisition of Sprint’s 9 million prepaid Boost customers and the right to acquire other potentially decommissioned assets will close July 8.
Still, Moody’s liked that deal, saying: “We believe that the deal with T-Mobile, which provides access to its wireless network through a seven-year MVNO arrangement as well as an agreement with the Federal Communications Commission for a more flexible build out, is a material strategic benefit for DISH’s plan and will provide an elegant solution for tackling the build out path and provide flexibility to relieve pressure points in building an organic network. This tempers the more significant negative pressure on DISH’s credit profile for now.”