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Rating Action:

MOODY'S ASSIGNS Ba2 RATING (SR. SEC.) TO PANAMSAT CORPORATION'S NEW BANK FACILITIY AND Ba3 TO NEW SR. UNSEC. NOTES AND DOWNGRADES EXISTING NOTES TO Ba2 FROM Baa3; ALSO DOWNGRADES HUGHES ELECTRONICS RATINGS (SR. UNSEC.) TO Ba3 FROM Ba1; ALL RATINGS REMAIN

16 Jan 2002
MOODY'S ASSIGNS Ba2 RATING (SR. SEC.) TO PANAMSAT CORPORATION'S NEW BANK FACILITIY AND Ba3 TO NEW SR. UNSEC. NOTES AND DOWNGRADES EXISTING NOTES TO Ba2 FROM Baa3; ALSO DOWNGRADES HUGHES ELECTRONICS RATINGS (SR. UNSEC.) TO Ba3 FROM Ba1; ALL RATINGS REMAIN

Approximately $4.8 Billion of Debt Securities Affected.

New York, January 16, 2002 -- Moody's Investors Service has assigned a Ba2 debt rating to PanAmSat Corporation's (PanAmSAt) new $1.25 billion senior secured credit facility and a Ba3 rating to the company's new $500 million senior unsecured notes offering due 2012. Moody's has also downgraded the company's $750 million in outstanding senior unsecured notes to Ba2 from Baa3, as they will receive a senior secured priority that will be pari passu to the senior secured credit facility, and has downgraded its short-term rating to Not-Prime from Prime-3. In addition to the PanAmSat rating actions, Moody's has also downgraded Hughes Electronics Corporation's (Hughes) senior unsecured bank debt rating to Ba3 from Ba1. All of the ratings for both PanAmSat and Hughes remain on review for possible further downgrade pending the outcome of EchoStar Communications Corporation's (B1 senior implied rating with developing outlook) and its subsidiaries' proposed merger with Hughes, which presently owns 81% of PanAmSat. The new PanAmSat and Hughes ratings are now positioned at the anticipated ceiling for what Moody's believes to be the high probability scenarios and the range of possible ratings pending the outcome of EchoStar's proposed merger with Hughes.

The downgrade of PanAmSat's credit ratings is based on the high probability that whether or not the Hughes merger is successfully completed, EchoStar has committed to acquire Hughes' 81% stake in PanAmSat. PanAmSat's debt capital structure is anticipated to consist of 80% senior secured debt (fully drawn) and 20% senior unsecured debt. It is likely that PanAmSat's senior secured debt ratings will move in conjunction with EchoStar's senior implied rating, with one notch lift to account for PanAmSat's stronger credit profile; but also as constrained by the Echostar overhang. As EchoStar's ratings still maintain a developing outlook, the current PanAmSat ratings ceiling takes into consideration a possible upgrade of the Echostar senior implied rating. The continued review for possible further downgrade considers another high probability rating scenario, which would be the confirmation of EchoStar's existing senior implied rating. In this case, PanAmSat's senior secured rating would be lowered to Ba3 and its senior unsecured rating could be lowered to B2. In the lower probability scenario that EchoStar's senior implied rating is downgraded, then PanAmSat's senior secured rating would drop accordingly. Another unlikely or low probability scenario is that in order to successfully complete the merger, federal regulators might require EchoStar and Hughes to spin-off PanAmSat as a stand-alone enterprise because the combined company will control the vast majority of satellites that provide Ku- and Ka-band spectrum over North America. However, even if band spectrum concentration becomes an issue during the course of the regulators' review, Moody's believes it is unlikely that a remedy would require the spin-off of the entire company rather than the sale or disposition of specific assets. However, in that scenario, Moody's would consider a return to higher ratings.

The downgrade of Hughes' credit rating reflects rising debt leverage and weak operating performance. While Hughes' U.S. DirecTV operations increased its subscriber base by more than 400,000 in the 4th quarter 2001, Moody's believes any margin expansion next year will be offset by continued losses at DirecTV Latin America, Hughes Network Systems, and DirecTV Broadband. In addition, the company will continue to invest considerable capital to continue developing its broadband products and combat piracy. Current lenders to the company's rated bank facility have the right to put the debt back to the company under a change of control provision if a merger with EchoStar is approved. Under a scenario where the merger is not approved, the company would be faced with near term refinancing risk, which should be easily remedied by proceeds from PanAmSat intercompany debt repayment, proceeds from the sale of the 81% PanAmSat stake to EchoStar, and from the transaction break-up fee.

Moody's believes that with transponder utilization running at only 70% of total satellite capacity, PanAmSat has good potential for further revenue growth. The company has stated that it has changed its focus on efforts to return to a 70% EBITDA margin and free cash flow growth through expenditure reductions, including diminished staff levels and lower capital investment rather than driving revenue growth. In addition, with nearly 80% of the company's satellite fleet insured by third parties for the initial three years in orbit and with the remainder being fully self-insured along with in-orbit back-up satellite capability, the ratings incorporate the company's exposure to the risk of in-orbit and launch (Galaxy IIIC Q2 of 2002) failures.

Additional rating changes include:

PanAmSat's outstanding $500 million senior unsecured multi-year revolving credit facility to Ba3 from Baa3

Hughes' outstanding $2 billion shelf senior unsecured rating to (P)Ba3 from (P)Ba1 and subordinate rating to (P)B2 from (P)Ba2

PanAmSat Corporation, with its headquarters in Wilton, Connecticut, is a provider of global video and data broadcasting services via satellite. Operating a global network of 21 in-orbit spacecraft and seven technical facilities, the company delivers entertainment and information to cable television systems, TV broadcast affiliates, direct-to-home TV operators, Internet service providers, telecommunications companies and corporations worldwide. PanAmSat is 81 percent owned by Hughes Electronics Corporation.

Hughes Electronics Corporation, with its headquarters in El Segundo, California, is a leading provider of direct-to-home digital television entertainment, broadband services, satellite-based private business networks and global video and data broadcasting.

New York
Neil Begley
Senior Vice President
Media, Telecom & Technology
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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