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Market rout makes Dish bond redemption nice deal for bondholders
June 21, 2013 / 3:30 PM / 4 years ago

Market rout makes Dish bond redemption nice deal for bondholders

NEW YORK, June 21 (IFR) - Dish Network Corp said on Friday it will redeem bonds issued in May to finance the bid for Sprint Nextel that it abandoned earlier this week, cheering bondholders who stand to make a profit on the debt.

That’s a bright spot following the meltdown in credit markets of the last two days which has battered many recently-issued high-yield bonds.

Dish in May raised US$2.6bn in the high-yield market to finance its proposed acquisition of Sprint. The company had tapped the market just weeks before for US$2.3bn.

The May bond proceeds were placed in escrow as the bid was competing with an earlier offer from Japan’s Softbank, which is now expected to complete the deal.

Dish will redeem all of the US$1.25bn 5% senior notes due 2017 and the US$1.35bn 6.25% senior notes due 2023. The notes will be redeemed in full on June 24.

The 5% notes due 2017 have a special redemption at par on or prior to November 28, 2013, while the 6.25% notes due 2023 have a special redemption at 101.

That means investors who bought the deal will make money upon redemption - which is par plus the accrued interest on the 2017 notes and par +1% plus accrued interest on the 2023 notes.

“Now with the market selling off, getting taken out at par plus accrued is pretty good,” said an investor. “Those tranches will have held in better than other bonds in the capital structure, so now you look like a genius if you bought it.”

Dish has been battling SoftBank which initially reached an agreement to pay US$20.1bn for 70% of Sprint in October. Dish launched a counter-bid of US$25.5bn in mid-April. On June 11, Softbank raised its offer to USD21.6bn.

Bondholders have also earned a bit playing the deal in the secondary market.

“I’ve taken advantage of buying the bonds when they traded below the take-out price,” said another investor.

SPRINT TO THE FINISH LINE

Dish Chief Executive Charlie Ergen’s next move is still largely uncertain, even though the company said it is focusing efforts on buying Clearwire, a wireless company which Sprint and Softbank are also trying to buy.

On Thursday, Sprint threw a wrench in those efforts too. Clearwire’s board, which had previously supported Dish’s US$4.40 per share offer for the outstanding shares of Clearwire, reversed course and accepted a sweetened bid of US$5 per share from Sprint.

Sprint currently owns 51% of Clearwire and is looking to buy the remainder. Whether Dish ups its bid remains to be seen.

“It’s a roller coaster with Ergen,” said one investor. “It’s really a flip of the coin as to what his real intentions are. He’s already fooled the high-yield market multiple times.”

Dish may continue to be a thorn in Sprint’s side.

“I think Dish is saying ‘If we get 20% of Clearwire, we’ll take it. We’re going to be a nuisance to [Sprint Nextel].” said a banker.

Some observers are speculating that Ergen’s main target from the beginning was not Sprint but Clearwire.

“Clearwire is a lot less expensive, so it’s easier to swallow and it has enough spectrum to meet his needs,” said the investor.

“But I just don’t know what Charlie Ergen is doing. I have no idea what his game plan is or what he really wants. As a bondholder, the one thing you like is certainty and that’s why I don’t own Dish.”

Sprint’s 6% notes due 2022 moved up half a point to 104.25-105 on Wednesday following the news that Dish would not up its offer, but slipped with the broader market on Thursday to 101.50-102.

Dish’s outstanding 5% notes due 2023, which are not being redeemed, fell to 93.50 on Thursday, after rising to 96.25 on the news that Dish was abandoning the Sprint bid.

Softbank’s 4.5% notes due 2020 have been trading at 97.50-98.50, roughly unchanged.

Clearwire bonds are also largely unchanged in the market, even with the latest sell-off, as investors assume that they will be taken out as soon as a deal goes through.

The 12% notes due 2015 have held in at around 106.875-107.125.

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