Why EchoStar Plunged Again Today
In This Article:
Key Points
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Following last week's decline on a missed interest payment, EchoStar missed a second one today.
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The FCC is currently reviewing whether the company has been adequately utilizing its spectrum.
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Elon Musk's SpaceX would like to use the spectrum, and is making a case that EchoStar has violated its agreement with the government.
Shares of telecom and satellite TV provider EchoStar (NASDAQ: SATS) plunged another 11.3% on Tuesday. The decline followed a 12.1% decline last Friday, followed by another single-digit decline yesterday.
Last week's decline came after the company announced it would not be making another interest payment on its debt, which is secured by a telecommunications spectrum that is currently a point of controversy. Then today, the company announced it would also not make a second interest payment that was due -- but this time, part of the debt in question was unsecured, raising even more questions.
No investor likes to hear about missed interest payments, which is likely why the stock fell yet again.
EchoStar vs. SpaceX and the FCC
On May 9, the Federal Communications Commission (FCC) sent a letter to EchoStar saying that some of its spectrum is now under review. EchoStar bought this wireless spectrum years ago, with an agreement that it would use the spectrum to build out a 5G network across the U.S. to add competition in the wireless telecom market.
EchoStar thus far hasn't gotten the network up and running in the time it was supposed to, but was granted an extension last year under the prior administration. However, the new FCC director is now saying that extension is being reviewed. Elon Musk's SpaceX also submitted a complaint, as it would like to use the spectrum itself.
In the meantime, it appears EchoStar is refusing to pay interest on its secured debt until that review is complete. On Friday, the company said it was skipping a $326 million interest payment. Then Tuesday, the company said it would be skipping another $183 million payment due today.
Interestingly, a portion of the interest today was on unsecured notes, which means the interest payments weren't necessarily tied to assets such as the spectrum or physical assets. This means the company isn't just withholding payments tied to the specific spectrum in question, but that it's not making interest payments in general.
That's a more worrying sign, which suggests EchoStar's current business model could become stressed if the government decides to seize the spectrum. The company claims it has been building out a 5G network as it tries to grow its Boost Mobile wireless business, since its satellite pay-TV business is in decline.