Overview:

The FCC’s letter, dated May 91 (the “FCC Letter”), has raised many questions from investors regarding the path forward for EchoStar Corporation (“EchoStar”) and Dish Network Corporation (“Dish Network”). EchoStar recently announced3 that it elected not to make scheduled interest payments on its 10.75% Senior Spectrum Secured Notes due 20294 (the “EchoStar Spectrum Bonds”) and on some of the bonds issued by DISH DBS Corporation (“Dish DBS”).

This has led to speculation that a bankruptcy filing by EchoStar might be forthcoming in the near future. While it is possible that if EchoStar files for bankruptcy, Dish Network and Dish DBS might file as well, customers have asked us whether a bankruptcy filing by EchoStar would trigger an Event of Default under the Dish Network secured 2027s.

Dish Network has outstanding6 $3.5 billion of 11.75% Senior Secured Notes due 2027 (the “Dish Network Notes”), issued under a November 15, 2022 Indenture (the “Dish Network Indenture”).

We understand from numerous market participants that there is significant market confusion surrounding this topic. Accordingly, in this report, we examine whether a bankruptcy filing by EchoStar would trigger an Event of Default under the Dish Network Notes.

Why is there speculation around a potential default under the Dish Network Notes?

The EchoStar Spectrum Bonds are guaranteed by, among other entities, NorthStar Spectrum, LLC, SNR Wireless HoldCo, LLC, NorthStar Wireless, LLC, and SNR Wireless LicenseCo, LLC (collectively, the “Spectrum Entities”). The Spectrum Entities hold the AWS–3 spectrum licenses, and it is unclear whether these entities are subsidiaries of Dish Network.

Since the EchoStar Spectrum Bonds are guaranteed by the Spectrum Entities, it is likely that a bankruptcy filing by EchoStar would include the Spectrum Entities. This has led to significant market speculation that, if the Spectrum Entities are subsidiaries of Dish Network, a bankruptcy filing by the Spectrum Entities would trigger an automatic Event of Default under the Dish Network Notes.

If we assume that the Spectrum Entities are subsidiaries of Dish Network, would a bankruptcy filing that includes them trigger an Event of Default under the Dish Network Notes?

What are the relevant Event of Default provisions for the Dish Network Notes that potentially could be triggered by a bankruptcy filing of the Spectrum Entities?

We begin by examining the relevant Events of Default under the Dish Network Indenture. Section 6.01 – Events of Default of the Dish Network Indenture provide for the following relevant Events of Default:

(f) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), which default is caused by a failure to pay when due of principal or interest on such Indebtedness within the grace period provided in such Indebtedness (a “Payment Default”), and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default, aggregates $250 million or more; [emphasis ours]

(g) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), which default results in the acceleration of such Indebtedness prior to its express maturity and the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $250 million or more; provided that any acceleration (other than an acceleration which is the result of a Payment Default under clause (f) above) of Indebtedness under the outstanding Deferred Payments in aggregate principal amount not to exceed $250 million shall be deemed not to constitute an acceleration pursuant to this clause (g); [emphasis ours]…

(i) the Company or any Significant Subsidiary of the Company pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (iv) makes a general assignment for the benefit of its creditors; [emphasis ours]

(j) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or any Significant Subsidiary of the Company in an involuntary case;