The Satellite News Financial Ticker

Wall Street Analysis

By Tom Watts, SG Cowen Securities

EchoStar Communications [Nasdaq: DISH] raised $2.5 billion in new debt last week. The money will provide funds to call (buy back) its $1.625 billion in 9 3/8 percent notes, as well as give it financial flexibility to acquire Loral Space and Communications [OTCBB: LRLSQ] and/or to retire additional debt. In an Aug. 6 research note, we highlighted EchoStar’s likely de-leveraging and earnings per share (EPS) accretion.

The debt re-financing should increase EchoStar’s recurring EPS by about 5 cents annually. Excluding one-time charges, this re-financing would raise 2004 EPS from $1.23 to $1.28 and 2005E EPS from $1.67 to $1.72. The move is another step toward positioning EchoStar to trade on a price/earnings (P/E) basis. Currently, EchoStar trades at 36.4 x 2004E EPS and 23.3 x the new 2005E EPS. But there is more. Even with a Loral purchase, EchoStar can still pay down its $1 billion in 10 3/8 percent notes callable (due) in October 2004, to add yet another $.022 to its bottom line.

We view the potential purchase of Loral highly positively. If successful, we believe the purchase would have two main implications for EchoStar. One, the acquisition would add about $175 million in earnings before interest, taxes, depreciation and amortization (EBITDA). Two, the purchase would add capacity to offer high-definition (HD) local services or other advanced services.

EchoStar already has begun introducing its “SuperDish” product that can simultaneously receive signals from a number of satellites at multiple frequencies. We believe the SuperDish could be used to receive signals from EchoStar’s current satellites, capacity it has agreed to lease from SES Americom at 105 degrees West, potential future broadcast satellite service capacity SES would launch at 105.5 degrees West, and Ku-band capacity on the Loral fleet.

EchoStar Chairman Charlie Ergen has shown time and again that having additional orbital slots and satellites can almost always be turned to a competitive advantage. The ability to offer HD services in local markets will enhance its position.

If EchoStar does not end up with Loral, the satellite TV service provider could buy something else.

Tom Watts is a managing director and satellite analyst at SG Cowen Securities. He can be reached by phone at 212/278-4260 or by e-mail at [email protected]. Readers should assume that SG Cowen Securities Corp. and/or its affiliates intend to offer services in investment banking to the above referenced companies within the next three months, and to seek compensation for such services.