(Troubled Company Reporter, Feb. 10. 2011)
Sprint Nextel Corporation said in a bankruptcy court filing that
the plan proposed by DISH Network to acquire 100% of the equity of
the reorganized DBSD N.A. for roughly $1 billion "significantly
undervalues the Debtors' assets and would provide a recovery for
unsecured creditors that is substantially worse than" the Plan
previously negotiated by DBSD with noteholders, ICO Global
Communications (Holdings) Limited, and Sprint Nextel.
According to Sprint Nextel and the ad hoc committee of certain
parties that hold or manage holdings of those certain 7.5%
Convertible Senior Secured Notes Due 2009 issued by DBSD, when the
Debtor filed motions for approval of a sale process with DISH and
an $87.5 million DIP facility to fund that process, it failed to
disclose that in January "a global settlement was reached with all
key constituencies other than DISH."
Agreement with Sprint & Noteholders
Both Sprint Nextel and DISH Network took an appeal from the
bankruptcy court's order confirming DBSD Network's Chapter 11
plan. After confirmation of the Plan was overturned by the Second
Circuit Court of Appeals, Sprint Nextel and the Ad Hoc Committee
began what turned into extensive negotiations and reached an
agreement in principle on the terms of the Amended Modified Plan
that will avoid any further litigation over valuation. The
parties -- excluding DISH -- engaged in negotiations in January
and reached an agreement in principal on January 24, 2011.
The agreement reached with Sprint and the Noteholders amends the
plan previously submitted to the bankruptcy court for confirmation
in these respects:
* Recoveries to General Unsecured Creditors shall be increased
from approximately 0.7% of the equity of the Reorganized
Debtors to 5% of the equity, prior to dilution by the exit
facility shares;
* Sprint's claim in the amount of $211 million shall be allowed
in the amount of $104 million;
* In exchange for release of any claims Sprint has or may have
against the Reorganized Debtors and their assignees,
licensees or transferees upon an assignment, lease or
transfer of the Reorganized Debtors' spectrum licenses, the
Reorganized Debtors will provide Sprint with warrants to
purchase additional equity of the Reorganized Debtors, the
exercise of which is subject to a limitation on Sprint's
allowed claim being paid in full;
* Sprint and ICO Global provide each other with releases with
respect to claims in connection with the Debtors' spectrum
licenses, including with respect to litigation currently
underway in Federal Court in Virginia;
* ICO Global will continue to enter into the Transition
Services Agreement and Amended License Agreement negotiated
in connection with the previously confirmed plan, and will
provide the Reorganized Debtors with enhanced spectrum
coordination; and
* ICO Global will be entitled to file an administrative claim
in the chapter 11 cases, subject to allowance by the Court,
in an amount not to exceed $3 million, which the parties
shall not object to so long as the amount sought is not more
than $3 million.
A copy of the Amended Modified Plan, as amended to reflect the
agreement with Sprint and the Noteholders, is available for free
at:
http://bankrupt.com/misc/DBSD_Sprint_Deal.pdf
$1 Billion Deal with DISH Network
Instead of pursuing the agreement with Sprint Nextel and the
Noteholders, DBSD filed on Feb. 1 a motion for approval of a sale
agreement for DISH Network to acquire 100% of the equity of the
reorganized DBSD N.A. for roughly $1 billion subject to certain
adjustments, including interest accruing on DBSD North America's
existing debt, pursuant to an "Alternate Plan." Under the
agreement, subject to and contingent on both an unconditional
Federal Communications Commission approval and anti-trust
clearance, the Debtors' assets will be sold to DISH and the
proceeds of such sale distributed to Senior Noteholders and
General Unsecured Creditors.
The Debtor also sought approval of a debtor-in-possession credit
facility from DISH, which will consist of a non-revolving,
multiple draw term loan in the aggregate principal amount of
$87.5 million.
According to the Debtors, the Alternate Plan values the Debtors at
more than 150% of the valuation provided under their pending
chapter 11 plan. The Debtors and DISH currently contemplate that
the Alternate Plan will pay the Senior Noteholders in cash in full
with accrued interest and provide for generous cash distributions
to all general unsecured creditors.
In the event that the Investment Agreement is terminated as a
result of certain events, such as the failure by DISH to obtain
FCC approval of the license transfers contemplated in the
Investment Agreement by a certain date (or at all), DISH is
required to pay the Debtors' estates a $25 million reverse break-
up fee.
A copy of the DISH Investment Agreement is available for free at:
http://bankrupt.com/misc/DBSD_DISH_InvestmentDeal.pdf
DISH vs. Nextel, Noteholders
According to the Ad Hoc Committee, the DISH Sale Process is highly
risky for senior noteholders and general unsecured creditors. In
sharp contrast to the Amended Modified Plan, the DISH Sale Process
will benefit DISH at the expense of senior noteholders and general
unsecured creditors by further delaying the Debtors' chapter 11
cases and permitting the Debtors' close competitor, TerreStar
Networks Inc. -- which DISH is also seeking to acquire -- to
emerge from bankruptcy before the Debtors. Moreover, the Debtors
and DISH are asking the Court to approve a 14-month, $87.5 million
DIP facility to fund the DISH Sale Process: a strong indication of
the many months and tens of millions of dollars the Debtors and
DISH anticipate will be lost before the Court and stakeholders
will even know whether unconditional FCC and anti-trust approvals
of the DISH Sale Process can be obtained and, even if such
approvals are granted, whether DISH will elect to close. If the
FCC denies or conditions such approval, or DISH decides to walk
away from the sale for no valid reason (for example, after
TerreStar emerges from bankruptcy), the senior noteholders and
general unsecured creditors will be stuck paying back DISH for the
cost of the DISH Sale Process (which will be administrative
expenses), while suffering the loss of estate value resulting from
up to 14 months of delay and TerreStar's prior emergence from
bankruptcy.
Sprint Nextel points out that based upon the $1 billion valuation
placed upon the Debtors by the DISH Plan, the equity that
unsecured creditors would receive under the Amended Modified Plan
would be worth at least $40 million an amount far greater than the
$23.5 million that would be provided to unsecured creditors under
the DISH Plan.
The Noteholders add that the Amended Modified Plan contains none
of the risks and contingencies of the DISH plan process, will not
require the Debtors to acquire and spend additional debtor-in-
possession financing, will not result in loss of the existing FCC
approval (which will expire on March 28, 2011), and will not
continue to expose all stakeholders to market changes.
A hearing on the Debtors' Investment Agreement with DISH is
scheduled on February 15, 2011 at 2:00 p.m.
The Ad Hoc Committee of Noteholders is represented by:
Dennis F. Dunne, Esq.
Risa M. Rosenberg, Esq.
Jeremy S. Sussman, Esq.
MILBANK, TWEED, HADLEY & McCLOY LLP
1 Chase Manhattan Plaza
New York, New York 10005
Tel: (212) 530-5000
E-mail: DDunne@milbank.com
RRosenberg@milbank.com
JSussman@milbank.com
- and -
Andrew M. Leblanc
MILBANK, TWEED, HADLEY & McCLOY LLP
1850 K Street, NW, Suite 1100
Washington, DC 20006
Tel: (202) 835-7500
E-mail: ALeblanc@milbank.com
Sprint Nextel is represented by:
Eric Moser, Esq.
K&L GATES LLP
599 Lexington Avenue
New York, New York 10022-6030
Tel: (212) 536-3900
Fax: (212) 536-3901
E-mail: Eric.Moser@klgates.com
- and -
John H. Culver III, Esq.
Felton E. Parrish, Esq.
K&L GATES LLP
Hearst Tower, 47th Floor
214 North Tryon Street
Charlotte, North Carolina 28282
Tel: (704) 331-7400
Fax: (704) 331-7598
E-mail: John.Culver@klgates.com
Felton.Parrish@klgates.com
Dish is represented in the case by:
J. Eric Ivester, Esq.
SKADDEN ARPS SLATE MEAGHER & FLOM LLP
Four Times Square
New York, NY 10036
Tel: 312-407-0920
Fax: 312-407-8510
E-mail: eric.ivester@skadden.com
About DISH Network
DISH Network Corporation -- http://www.dish.com/ -- through its
subsidiary DISH Network L.L.C., provides more than 14.2 million
satellite TV customers, as of September 30, 2010, with the highest
quality programming and technology at the best value, including HD
Free for Life. Subscribers enjoy industry-leading customer
satisfaction, the largest high definition line-up with more than
200 national HD channels, the most international channels, and
award-winning HD and DVR technology.
The Company's balance sheet at June 30, 2010, showed $9.03 billion
in total assets and $10.61 billion in total liabilities, and a
stockholders' deficit of $1.58 billion.
* * *
At the end of January 2011, Fitch Ratings affirmed the 'BB-'
Issuer Default Rating assigned to DISH Network and its wholly
owned subsidiary DISH DBS Corporation. Fitch has also affirmed
the 'BB-' rating assigned to the senior unsecured notes issued by
DDBS Corporation. Additionally, Fitch has revised DISH's Rating
Outlook to Stable from Negative. As of Sept. 30, 2010, DISH had
approximately $6.5 billion of debt outstanding. The Stable
Outlook recognizes the operational rebound DISH has experienced
during 2010. Overall, Fitch's ratings reflect the operating
leverage derived from DISH's size and scale as the third largest
multi-channel video programming distributor in the U.S. and
Fitch's expectation for continued, albeit pressured free cash flow
generation.
Dish Network carries a 'Ba3' corporate family rating, with "stable
outlook", from Moody's. Moody's said that Dish Network's Ba3
Corporate Family Rating and stable outlook are not affected by the
company's announcement that it has entered into an agreement to
acquire 100% of the equity of the reorganized DBSD North
America, Inc., a hybrid satellite and terrestrial communications
company, for approximately $1 billion including interest accruing
on DBSD North America's existing debt.
About DBSD North America
Headquartered in Reston, Virginia, DBSD North America Inc., aka
ICO Member Services Inc., offers satellite communications
services. It has launched a satellite, but is in the
developmental stages of creating a satellite system with
components in space and on earth. It presently has no revenues.
The Company and nine of its affiliates filed for Chapter 11
protection on May 15, 2009 (Bankr. S.D.N.Y. Lead Case No.
09-13061). James H.M. Sprayregen, Esq., and Christopher J.
Marcus, Esq., at Kirkland & Ellis LLP, in New York; and Marc J.
Carmel, Esq., and Sienna R. Singer, Esq., at Kirkland & Ellis LLP,
in Chicago, serve as the Debtors' counsel. Jefferies & Company is
the financial advisors to the Debtors. The Garden City Group Inc.
is the claims agent for the Debtors. DBSD estimated assets and
debts of $500 million to $1 billion in its Chapter 11 petition.
Timothy A. Barnes, Esq., and Steven J. Reisman, Esq., at CURTIS,
Mallet-Prevost, Colt & Mosle LLP, in New York, represent the
Official Committee of Unsecured Creditors.
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