The collapse of EchoStar Communications' bid for Hughes Electronics gives investors a chance to make total return gains in the satellite sector, according to a buy- and sell-side analyst. However, they disagree on which credits stand to benefit the most.
Andy Van Houten, co-head of high-yield research atDeutsche Banc Securities, is forecasting long-term gains in bonds of both Echostar and PanAmSat, the satellite operator in which Hughes has a $2.7 billion stake and which was going to be bought by EchoStar as part of the deal. The failure of the bid leaves EchoStar with lots of cash that it can use to redeem bonds, invest in its business or make acquisitions, Van Houten says. He argues further that EchoStar will benefit from having had a yearlong up close view of its competitors, which will help the company as it continues to compete with Hughes' DirecTV satellite unit.
The EchoStar 9.375% notes of '09 were up two points to 104.5 last Wednesday on news the company had given up on the deal. The PanAmSat 8.5% notes of '12 (Ba3/B-) were down a point and a half to 94.5.
An analyst at a West Coast money manager argues that the biggest beneficiary of the new situation is Pegasus Satellite. He says his firm added to its allocation in the name because it would have had a difficult time competing with a merged EchoStar-DirecTV. However, it could now be bought by News Corp, which may renew its bid for DirecTV. The Pegasus 12.375% notes of '06 (Ca/CCC+) were up eight points to 53.