Hughes Electronics' recently amended bank loan poses a refinancing risk to lenders due to the loan's short tenor, according to Moody's Investors Service. Encountering a Dec. 5 maturity for its $2 billion revolving credit facility, Hughes pushed out the expiration date for the paper until either Aug. 31, 2003 or the close of Hughes' merger with EchoStar Communications, depending on which event comes first. In conjunction with the extension, Hughes also remodeled the credit into a $700 million revolver and a $600 million term loan. GMAC is the sole lender on an additional $500 million revolver. The loan has received a Ba3 rating from Moody's and is on review for possible downgrade pending the outcome of the proposed merger.
Due to the U.S. Department of Justice and Federal Communications Commissions opposition to the merger, the transaction appears increasingly in doubt. The credit focus now turns to liquidity and permanent financing for the company's long-term needs, according to Moody's. An important factor for the company will be the receipt of $2.7 billion in funds from EchoStar's purchase of Hughes' 81% stake in PanAmSat. The purchase is intended to proceed regardless of the outcome of the merger. If the $2.7 billion sum is received in a timely manner, Hughes will be able to meet the bank-debt maturity. If the PanAmSat stake is not transferred, there is a $600 million termination fee that could apply in certain situations.
Hughes' ratings incorporate high debt leverage and weak operating profit, and any rating improvement will be dependent on the company's continued cash burn and capital demand, notes Moody's.