At the Advanced Television infosite, journalist Chris Forrester reports that OneWeb might be in Chapter 11 bankruptcy (under ‘debtor in possession’ rules); however, that company’s major backer, Japan’s SoftBank, has stated that in addition to a $75 million fresh loan to the company, the firm might extend that by another $225 million.
The maximum of $300 million will help keep OneWeb alive while the company seeks to sell itself or its main assets. OneWeb entered Chapter 11 on March 27.
The SoftBank loan is structured as $10 million now, with the $65 million of funding contingent on OneWeb making some progress towards selling its most valuable asset, it spectrum and licensed frequencies.
If a Letter of Intent comes forward from a potential buyer, then extra cash will flow into OneWeb. OneWeb has stated the firm hopes to secure this Letter of Intent by May 11. These extra funds come on top of the existing $2 billion in terms of investment in OneWeb that SoftBank has already made in the company. OneWeb’s total equity and debt has topped $3.4 billion.
OneWeb has a handful of other significant debtors, not the least of which are Airbus Group, Banco Azteca, Qualcomm Technologies, Institución de Banca Múltiple as well as the Ruwandan government.
Analysts at MoffettNathanson (MN) aptly described Ergen’s position a “petri dish” of challenges, stating that Ergen’s entry into the pre-paid wireless business would have been challenging, even under the best of circumstances. These aren’t the best of circumstances. Sprint’s Boost – which Ergen is acquiring – was already beset by sky-high churn even before the coronavirus crisis. Its customers skew towards lower income, urban, and, now (presumably) unemployed. “Welcome to the wireless business,” stated MN.
The analysts admit that they were never wholly convinced by Ergen’s plan to build a fourth national wireless network, but add that it is “even harder now. Dish’s subscription businesses – a satellite TV business that has always positioned itself as payTV’s budget option, and a pre-paid wireless business that caters to urban lower-income subscribers – will face a particularly challenging path.
“As Dish’s credit spreads have widened, the cost of funding the network has risen, lowering whatever would otherwise have been the project’s NPV. And the odds that Dish will be able to attract a strategic partner have fallen (although we’ve never thought that was a realistic expectation, either). Even if one believed their network could be built for just $10 Billion – we expressed our skepticism on this score, as well – at Dish’s current cost of debt, the financing costs of building the network would consume about half of the cash flow generated by their faltering satellite TV business,” stated MN, adding that the firm’s satellite TV business will suffer in the recession as well. With no sports on the air, and with soaring unemployment, Americans will inevitably search for costs they can shed. As with pre-paid, Dish is disproportionately skewed to lower credit quality consumers.
However, most recognize Ergen as a skilled poker player and a master at second-guessing the market. MN is not convinced. They bluntly state there is “no floor” for Dish’s equity and have slashed their Target Price for Dish to just $15 a share (down from the previous $30 mark).