Confirmed: Echostar Is Buying Sirius' Bank Debt, Not Convertible Debt; Aiming For Control?

This story was written by Rory Maher.
The Wall Street Journal reported this morning that satellite TV provider Echostar (NSDQ: SATS) Corp. was quietly buying up portions of Sirius Satellite Radio's debt, setting off rumors that Echostar CEO Charlie Ergen may be making a play for control of the satellite radio provider in an effort to way idea to build its business, which has suffered from increasing competition. Echostar could be buying a couple of different types of Sirius debt, each of which would have different implications:

If Echostar is buying the convertible debt due in February, it could either be making a play for equity (it would have the option to convert the debt to equity), or planning to get in line behind the bank debt holders in bankruptcy proceedings.
If Echostar is buying bank debt, it could be looking to take control of the company during bankruptcy proceedings. as, again, bank debt holders are first in line for the assets.

I spoke to a couple people outside the company but intimately familiar with the situation who confirmed that Echostar is buying the bank debt, not the convertible debt.  This would support the idea that Ergen is looking to control Sirius (NSDQ: SIRI). The real question then becomes what is he going to do with Sirius if he takes control of it.

My sources believe that if Echostar buys enough bank debt, the most likely next steps are:

Ergen sees value in the company as a standalone business once the subordinated debt and equity holders are wiped out in bankruptcy and the bank debt holders take control of the company, leaving Sirius with no debt on its balance sheet

or

Ergen would attempt to use the assets to expand into other businesses within Echostar.

If the latter is true, Ergen would probably use Sirius' terrestrial repeaters (which boost satellite transmissions locally in areas with high interference like cities) and orbital slots to launch a broadband Internet service that he has tried unsuccessfully to get off the ground in the past.  Of course, Ergen would need to successfully convince the FCC that satellite radio is not a viable business and that the agency should amend the licenses granted to Sirius to allow the spectrum on the company's orbital slots and repeaters to be used for broadband Internet access. 

That's a tall order, but given the upside, it's understandable how tempting it must be for Ergan. 


By Rory Maher
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