EchoStar Abandons Satmex Bid

EchoStar and joint-venture partner Mexican communications firm MVS Comunicaciones have abandoned an offer for Mexican satellite operator Satmex after holders of more than 50% of its second priority senior secured notes refused to back the deal worth up to $374m. The would-be buyers offered to inject $267m in cash and use another $107m of Satmex’s own cash to pay creditors and shareholders in exchange of 100% of the equity of a debt-free Satmex. However, holders of the debt and equity could not reach an agreement on how to divide the cash. First-lien creditors would not accept a haircut, shareholders wanted to get paid something and second-lien creditors balked at being squeezed on both sides, says BCP director of corporate research James Harper. “There is a sense that the holders of the first lien notes are not willing to give up anything,” he explains. He adds that the only alternatives left to Satmex are to continue operating while trying to finance construction and launch of at least 1 new satellite or find another buyer. He does not expect EchoStar and MVS to return with a higher bid. Harper, who declines to comment on BCP’s exposure to Satmex, says that to pay its debt, Satmex would need to continue operating. But of its 3 satellites, 1 is not functioning, another should be operational for about 11 more years and a third only has capacity to last for another 2.5 years, he explains. Satmex is still generating cash in these conditions, and in the last 12 months made $88m. It also has $110m-$120m cash but needs to get a new satellite to continue generating cash after 2.5 years. A new satellite, he says, will cost over $300m. Harper adds that there is also a risk that clients will abandon Satmex and seek another provider, as it knows that one of the satellites will not be working after 2.5 years. Satmex says it continues to study its strategic alternatives and restructuring options. Jefferies advised the note holders and Deutsche and Peter J. Solomon advised EchoSt