Investor Dish Network Lambastes Former ICO’s Reorganization Plan
PARIS — U.S. satellite-television provider Dish Network Corp., which in July made a surprise investment in mobile satellite services provider ICO North America — renamed DBSD North America Inc. — now says DBSD is worth almost nothing and cannot survive even if it is allowed to wipe out its debt in ongoing Chapter 11 bankruptcy proceedings.
In surprisingly strong language for a company that purchased about $45 million in DBSD debt after the company had filed for bankruptcy, Dish has told the U.S. Bankruptcy Court for the Southern District of New York that DBSD’s proposed reorganization, which has been accepted by a majority of its debt-holders, “is a speculative roll of the dice.”
“This no-revenue business proposes to make no payments to lenders for four years, with a ballooning debt load, no source of refinancing [and] no credible business plan other than the hope that an investor will come to the rescue at an inflated valuation and that capital markets will return to an unprecedented era of exuberance to finance an inherently risky telecommunications start-up,” Englewood, Colo.-based Dish says in an Aug. 27 bankruptcy court filing. “The likelihood of a third Chapter 11 case for this business is more than a concern; it is the nagging reality that underlies this plan.”
Reston, Va.-based DBSD filed for Chapter 11 bankruptcy protection May 15. In a previous incarnation as a company building a constellation of large satellites, ICO had entered Chapter 11 in 1999. It was subsequently purchased by its current owners, led by cellular pioneer Craig O. McCaw.
McCaw, who has perhaps lost more money in satellite investments — before ICO, there was a planned 200-satellite constellation called Teledesic — than any other single person, has apparently decided to cut his losses. ICO Global, which is not part of the bankruptcy proceedings and which McCaw also controls, has declined to come to the aid of DBSD.
Specifically, ICO Global, which has no immediate prospects of building its long-shelved satellite constellation, has declined to make its principal asset, a $600 million-plus court award against satellite-builder Boeing, available to DBSD.
Under the proposed reorganization plan, which the bankruptcy court will review Sept. 9, DBSD’s current owner would have no more than a 5 percent equity stake in the post-bankruptcy company. ICO’s creditors would have 95 percent ownership.
Some of these creditors — more confident than Dish Network in DBSD’s chances of making their mobile satellite business a success — have agreed to lend ICO another $50 million under the proposed reorganization plan, equivalent to about two years’ operations.
These creditors are basing their optimism about DBSD on an analysis performed by Yuri Brodsky of UBS Securities LLC. In an “Expert Report” to the court Sept. 2, Brodsky insists that a debt-free DBSD “will be able to successfully access the debt and/or equity markets when required,” and specifically by 2011 when its cash would run out.
In his statement, Brodsky points to “a long history of the demonstrated ability of developmental-stage satellite companies to access the capital markets when necessary.”
The list of companies cited by UBS includes satellite-radio provider WorldSpace and satellite-television provider ProtoStar, both in Chapter 11 bankruptcy; and mobile satellite services provider, which was recently saved from collapse by a French government-guaranteed cash infusion on behalf of France’s satellite manufacturing industry.
UBS also says that if the proposed DBSD reorganization is approved, the company will be in better shape than fellow mobile satellite services startups TerreStar and SkyTerra, which generate almost no revenue and have accumulated $978 million and $1.2 billion in debt, respectively.
DBSD, ICO Global, TerreStar and SkyTerra have all been pitched to investors as investments in the value of radio spectrum.DBSD, ICO Global and TerreStar use S-band, while SkyTerra uses L-band.
U.S. regulators have granted mobile satellite operators the right to use the same spectrum that carries signals between users and their satellites for a network of ground-based signal transmitters called Ancillary Terrestrial Components, or ATC.
The U.S. Federal Communications Commission has said that while these satellite companies may use the spectrum without having to win it at auction, they must maintain a viable satellite service, and must have a replacement satellite built and ready for launch within a year of offering commercial ATC service.
A new satellite of this type would cost around $300 million to build and launch. Deploying an ATC network would cost between $300 million and $800 million, according to DBSD. DBSD’s distinguishing service, called Mobile Interactive Multimedia, or MIM, would cost up to $1.5 billion to complete, according to DBSD estimates.
In addition to these likely costs, DBSD and TerreStar face a demand from cellular network provider Sprint Nextel that they pay $100 million each to offset Sprint Nextel’s costs of clearing the S-band spectrum of its former users. The Federal Communications Commission is reviewing Sprint Nextel’s demand.
DBSD, ICO Global, TerreStar and SkyTerra are proceeding on the long-held expectation that they will be able to find a strategic investor willing to make these necessary investments. To date, none of them has found such a partner.
DBSD Chief Executive Michael P. Corkery, in an Aug. 28 statement to the bankruptcy court, say the company remains open to having Dish Network step in as DBSD’s strategic partner. In addition to its DBSD investment, Dish is also an investor in TerreStar.
In his affidavit, Corkery says DBSD has failed to secure a deep-pockets partner mainly because of its $810 million in debt and the collapse of credit markets in the current recession.
Corkery urges Dish to accept the proposed reorganization, which would replace existing Dish first-lien debt — which in principle means Dish would be among the first creditors to be repaid — into a four-year loan carrying a 12.5 percent annual interest rate.
Under U.S. bankruptcy law, the court must assure itself that a proposed reorganization will give the affected company a realistic chance to succeed and will not be followed by a repeat Chapter 11 filing, or a liquidation of the company’s assets. Otherwise, the plan is rejected and the court solicits an alternative plan or, in the worst case, moves the proceedings toward a liquidation of the company’s assets.
Corkery and UBS argue that the 20 megahertz of contiguous S-band spectrum over North America that DBSD has access to will only increase in value as government, business and consumer appetite for wireless communications bandwidth increases.
“In particular, [DBSD] will explore strategic transactions with existing wireless providers, Internet-based companies and satellite broadcast providers, among others — all of whom could use the [DBSD] spectrum.”
Dish counters that DBSD’s reorganization will, if accepted, lead to the company piling on fresh debt — to $260 million by 2013 according to Dish — with no revenue or cash-rich partner on the horizon.
One industry official closely following the DSBD proceedings said it remains unclear what Dish’s ultimate goal is and why it made its July investment in DBSD debt. The company has not disclosed to its shareholders what it wants to do with its DBSD or TerreStar investments.
A merger of DBSD and TerreStar — each has a healthy satellite in orbit — would give the merged company 40 megahertz of spectrum, which would have greater appeal to prospective investors than each company’s 20-megahertz allotment.
Several industry officials have speculated that Dish might prefer to precipitate a liquidation of DBSD as a fast track to a merger with TerreStar, rather than to have other DBSD creditors pay Dish off to ease court acceptance of the proposed reorganization.