SATS: EchoStar has a High Yield Debt Opportunity

EchoStar Corporation (SATS) is a prominent player in the satellite communication and broadband technology sectors. Founded in 1980 by Charles Ergen, EchoStar initially focused on distributing C-band TV systems. Over the years, it expanded its operations, launching its first satellite, EchoStar I, in 1995 and establishing the DISH Network brand in 1996. In 2008, EchoStar split into two entities: the aforementioned DISH Network Corporation and EchoStar Corporation, with the latter retaining the technology and infrastructure assets. In 2023, EchoStar and DISH Network were merged again in order to provide financial flexibility for DISH to build out its 5G capabilities.

Recently, EchoStar has faced significant financial challenges. In 2023, the company reported a net loss of $1.7 billion, primarily due to its dwindling PayTV business as a result of its merger with DISH

Current Financial and Valuation Metrics:

  1. Current Stock Price: $18.08
  2. Market Capitalization: $4.91 Billion
  3. Net Debt: $24.63 Billion
  4. Total Assets: $55.56 Billion (As of last quarter)
  5. Total Liabilities: $35.72 Billion (As of last quarter)
  6. Cash: $766.35 Million
  7. Book Value per Share: $72.84

Pro’s for EchoStar:

  1. Large Untapped Spectrum Portfolio: As of the last quarterly EchoStar has almost $39.20 Billion worth of spectrum licenses on its balance sheet (In the United States, the Federal Communications Commission (FCC) oversees licensing of spectrum frequencies which are licenses that allow a company the exclusive right to broadcast over a certain frequency everything from the radio to wireless internet. Major telecom companies own most of the licensed spectrum allocated for wide-area coverage and these licenses are extremely valuable especially as 5G is being rolled out across the nation.
  2. Strong Internal Management: CEO Hamid Akhavan and the entire C-Suite has decades of experience in both telecom and private equity and has repeatedly stated on earnings calls that his main focus is Debt repayment and ensuring EchoStar can remain afloat.
  3. Expanding 5G Demand: as carriers expand their 5G offerings across the country the demand for usable 5G spectrum will increase dramatically which puts EchoStar in a prime position to take advantage if it can come up with the capital to sustain its infrastructure roll out short-term while simultaneously paying off upcoming maturities

Con’s for EchoStar:

  1. Large Debt Load: As of the last quarter EchoStar had $25.39 Billion of debt on its balance sheet. This contrasts with its $766.35 million cash on hand.
  2. Upcoming Maturities: EchoStar was able to pay off a March 2024 Debt maturity with cash on hand however they have a $1.98 Billion up coming Novemeber 2024 Maturity which they do not currently have the cash on hand to meet. This has caused them to issue an “ability to continue as a going concern”. EchoStar also angered some Debt holders by moving previously secured Spectrum to a new entity which caused said Debt holders to file suit. This could hamper EchoStar’s ability to refinance or seek new funding from the credit markets.
  3. 5G Rollout Costs: 5G Network buildouts are incredibly capital intensive and considering the current debt load unless EchoStar seeks new financing, either independently or tied to there unused spectrum, they will not have the capital needed

Proposed Trade: I propose going long the JULY 1st 2026 DISH DBS CORPORATION SER B NOTE which as of writing is trading at ~$63.73 at significantly distressed levels. To hedge this position I also propose going long the Jan 16 2026 $10 Put at the appropriate amount equivalent to the bond position (most brokerages will tell you the maximum amount that may be gained by a put position).

Scenario #1: EchoStar does not get the funding to refinance its November 2024 Maturity or Declares Bankruptcy in the next 24 months

Consequences:

  1. EchoStar would immediately file for Bankrupcty (whether that be Chapter 11 or Chapter 7 remains to be seen given the large spectrum assets it currently holds creditors may feel they could make more from spectrum sales in a Chapter 7)
  2. EchoStars Bonds would presumably fall and the common stock would drop to near worthless
  3. Your Bond position might suffer a loss short term however the gain from the long put position should help cover some if not all of the losses in the shorter term.
  4. In the event of a Ch 11 restructuring your option position would more than cover any losses from the bond position and you would most likely receive shares in return for your debt position of a company that would be very well positioned coming out of bankruptcy with little debt and a valuable asset base as it would now have the room to conduct its 5G rollout.
  5. In the event of a Ch 7 liquidation not only would you reach your maximum gain on the option position but with the significant gap between Assets and Liabilities, even accounting for a reduction current assets, EchoStars spectrum licenses alone could yield enough cash to pay back creditors and make your bonds whole. This isn’t even counting Net property/plant/equipment that stands at around $12.68 Billion

Scenario #2: EchoStar does get the funding to refinance its November 2024 Maturity and does not declare bankruptcy in the next 24 months

Consequences:

  1. EchoStar would be able to pay off its current short-term debt obligations and invest in its wider 5G network rollout putting it in a prime position to leverage its significant spectrum assets to become a nationwide leader in 5G
  2. Your option position would be presumably worthless however your debt position would be paid off at maturity in full yielding you an annualized return of ~34% at current levels for a total return of ~102%

Conclusion

The trade is high-risk but offers significant potential upside. In the event of both bankruptcy or survival as the hedged position (bond and put option) could mitigate risks and possibly yield substantial returns due to EchoStar’s asset base. If EchoStar succeeds in its refinancing efforts, the bond could provide a significant return. Of course this is not financial advice; do not invest without first doing you’re own due diligence. Just wanted to an idea.