Moody’s Investors Service said it has reduced its ratings on Dish Network bonds another step below investment grade, citing concerns that the satellite TV giant will need a lot more capital to finance its planned 5G Internet-of-Things wireless network.
In its note explaining the downgrade, Moody’s said that it believes “there is increased risk burdened by bondholders as Dish continues with its plan to build out a state of the art 5G IoT broadband network until it secures a material equity investment and/or partner. We also believe risk is rising due to the continuing secular decline of DBS's pay-TV subscriber base.”
Moody’s lowered its rating on Dish bonds from B1 to Ba3, adding it is concerned that the satellite TV service provider’s revenue continues to decline as its capital needs increase to refinance and repay its debt. Dish has lost about 2 million subscribers to its core satellite business since Q4 2017, while overall revenue has fallen about 11% between 2017 and 2019, as consumers increasingly abandon traditional pay TV for streaming services. Adding to the pressure are Dish’s plans to build out a 5G wireless network — using its own spectrum and licenses it will purchase from T-Mobile — which it said will cost about $10 billion.
Most analysts believe that the cost of building the network will be much higher, including Moody’s, adding in its note that the cost of the build-out has been a “great source of debate as it pales in comparison to even maintenance spending by existing US wireless companies.”
Moody’s said there are some inherent cost efficiencies — notably using the cloud to “virtualize” the network and building a wireless infrastructure without having to maintain an existing wireless customer base simultaneously. But the credit rating agency added it was “concerned and biased towards a potentially unexpected and materially higher cost to complete the build out.”
Moody’s noted Dish’s June 25 placement of about $1 billion in high-yield bonds that will be used to refinance some debt. But the credit ratings agency said it expects Dish’s operating performance to get worse, outpacing debt reduction, going forward. Moody’s predicted that Dish’s cash flow will decline in the mod-to-high single digit percentage range during the next 12-to-18 months.
Dish stock was down about 2% in afternoon trading Thursday, priced at $33.74 per share.
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