North America High-Yield Bond: Dish Network’s US$5.25bn dual-tranche bond

IFR Awards 2021
3 min read
Sunny Oh

Dish dash

Dish Network's deal to finance the buildout of a 5G wireless network demonstrated how a telecoms issuer could be bold and creative at borrowing significant sums without souring other bondholders.

In the wake of the offering’s success, it is easy to forget how Dish’s announcement that it would issue new secured bonds in November had sparked panic in the market. The existing unsecured notes of its satellite TV business DBS sold off over worries they would be “primed” – end up sitting below the flood of new secured notes.

It was an unwelcome shock to the unsecured debtholders who had grown to trust the telecoms operator after it steadily deleveraged over the years. Recovering their bruised confidence would be key to Dish's plans to find financing for its wireless spectrum purchases.

At the behest of Dish, bookrunners Deutsche Bank, JP Morgan and Guggenheim managed to assuage the market’s concerns with a crafty solution that had taken months to work out.

The satellite TV subsidiary DBS would use proceeds to finance an intercompany loan to the parent company, which in turn would use the loan to buy wireless spectrum licences. The spectrum would serve as the collateral for the loan.

Even though the new secured bonds (Ba3 by Moody’s and B+ by S&P) carried a first priority lien in the DBS assets, the unsecured holders of DBS debt would remain senior to the secured debtholders when it came to the spectrum collateral. The structure gave the DBS unsecured holders, who were stuck invested in a secularly declining industry, a stake in Dish Network’s promising wireless business.

Market participants noted this feat of creative structuring was more often the province of the distressed debt market, where creditors jockey against each other for collateral and companies have to be creative to keep creditors happy.

“I don’t think I’ve ever seen a structure like this where an issuer has gone out of their way to give something to bondholders when they didn’t have to, as they had the restricted payments capacity to just take the proceeds,” said Alexandra Barth, co-head of US leveraged capital markets at Deutsche.

Despite the unusual use of proceeds, underwriters managed to raise a sizeable sum. Among high-yield borrowers, only American Airlines and Medline sold bigger bonds last year.

Dish eventually landed a US$2.75bn five-year senior secured bullet at 5.25% and a US$2.5bn seven-year senior secured bullet at 5.75% after upsizing from a proposed US$4bn at the start.

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