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Rating Action:

MOODY'S ASSIGNS HUGHES ELECTRONICS CORPORATION'S AMENDED AND INCREASED $1.8 BILLION BANK FACILITIES A Ba3 (SR. SEC.) RATING

14 Mar 2002
MOODY'S ASSIGNS HUGHES ELECTRONICS CORPORATION'S AMENDED AND INCREASED $1.8 BILLION BANK FACILITIES A Ba3 (SR. SEC.) RATING

Approximately $1.812 Billion of Debt Securities Affected.

New York, March 14, 2002 -- Moody's Investors Service has assigned a Ba3 debt rating to Hughes Electronic Corporation's (Hughes) newly amended and expanded $1.812 billion senior secured credit facility.

This senior secured facility, which amends and expands the company's current $750 million senior unsecured credit facility, will consist of a new $577.3 million term loan together with a $1.235 billion revolving credit facility, all maturing on the earlier of December 5, 2002 or at the close of Hughes' proposed merger with EchoStar Communications Corporation (B1 senior implied rating with developing outlook). At Hughes' option, the term loan size may be increased to $764.75 million, which would increase the size of the rated facility from $1.8 to $2.0 billion. The entire facility will be secured by the assets and capital stock of significant wholly-owned domestic subsidiaries, excluding those of its 81%-owned subsidiary PanAmSat Corporation and DirecTV Latin America. Hughes' Ba3 rating remains on review for possible further downgrade pending the outcome of its proposed merger with EchoStar Communications Corporation and its subsidiaries. Hughes' rating is 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 the proposed merger.

Hughes ratings reflect high debt leverage and weak operating profit performance at Hughes. While Hughes' U.S. DirecTV operations increased its subscriber base by more than 400,000 in the 4th quarter 2001, Moody's believes that 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 is expecting to continue investing considerable capital to develop and expand its broadband products and local markets. Moody's recognizes that Hughes has achieved a very large pay television subscriber base at its DirecTV subsidiary, totalling nearly 11 million at the end of 2001, and has continued strong growth of net new subscribers relative to flat growth to subscriber losses for most U.S. cable TV operators' pay television operations. DirecTV is the largest direct-broadcast-satellite or DBS television provider in the US and the third largest pay-television provider in the US overall after AT&T Broadband and AOL Time Warner Inc. and its Time Warner Entertainment L.P. partnership interest. Hughes' 81% ownership of PanAmSat has helped support it ratings, however, the company does not benefit from any regular dividend from that operation.

DirecTV continues to grow its subscriber base, however, competition from other satellite providers as well as cable operators continue to challenge the company's results. Moody's believes that aggressive new marketing offerings by other multi-channel video programming providers and product upgrades and new product offerings by cable operators will ensure a competitive environment for DirecTV for the foreseeable future. This could hinder future reductions in new-subscriber acquisition costs or possibly slow the company's currently strong subscriber growth. However, as new subscriber growth slows, Moody's anticipates operating profit performance and credit metrics to improve dramatically.

The primary risk for the bank facility is refinancing risk, given the short duration to maturity. If the merger is not completed, we believe that EchoStar would still be required to purchase Hughes' 81% stake in PanAmSat (which we believe it currently has adequate capital and capital commitments to complete) and pay a transaction termination fee to Hughes of $600 million under most scenarios. The proceeds from both should be adequate to repay the outstanding debt under the bank facility. The scenarios which could cause the transaction to terminate without either the purchase of PanAmSat or payment of the breakup fee include: 1) lack of approval from GMH shareholders; 2) failure to secure a tax-free ruling for the transaction; 3) acceptance of a competing proposal by GM; 4) lack of regulatory approvals within 15 months of the signing of the definitive agreement for the merger; 5) a material adverse change in the condition of Hughes which is specific to its condition rather than the industry in which it operates as a whole, the economy or financial markets, and which would affect the combined company in a manner which cannot be cured within 15 months of the signing of the definitive agreement for the merger; 6) breach by Hughes of representations or covenants within the definitive merger agreement; and 7) regulatory consent conditions which are acceptable by EchoStar but unacceptable by Hughes. In Moody's view, these potential outs under the definitive agreement are of a remote probability and therefore not likely to cause any material refinance risk. In the case of either not securing the tax-free ruling or not attaining shareholder approval, the company will likely know the results by July of this year and therefore have about four months to refinance the outstanding debt. Hughes' near term capital needs have been addressed by the senior secured bank facilities, the $1.725 billion proceeds from the PanAmSat intercompany debt repayment in February and by a GMAC revolver, which provides $500 million incremental liquidity. The GMAC revolver matures in December 2002 and may be extended to March 2003 at Hughes' option.

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 P. Begley, CPA
Senior Vice President
Media, Telecom & Technology Grp.
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Konefal
Managing Director
Media, Telecom & Technology Grp.
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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