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Rating Action:

MOODY'S CONFIRMS DEBT RATINGS OF HUGHES ELECTRONICS CORPORATION AND PANAMSAT CORPORATION; ASSIGNS A3 RATING TO BANK LOAN OF HUGHES ELECTRONICS CORPORATION

12 Nov 1997
MOODY'S CONFIRMS DEBT RATINGS OF HUGHES ELECTRONICS CORPORATION AND PANAMSAT CORPORATION; ASSIGNS A3 RATING TO BANK LOAN OF HUGHES ELECTRONICS CORPORATION New York, 11-12-97 -- Moody's Investors Service confirmed the A3 long term and Prime-2 short term rating for Hughes Electronics Corporation (Hughes) in anticipation of General Motor's plans to close in December 1997 on a restructuring of its Hughes Electronics subsidiary including the spin-off of Hughes' defense business and the merger of Delco, Hughes' automotive business, into Delphi, GM's automotive parts operation. At the same time, Moody's assigned an A3 rating to the proposed Hughes' Bank Credit Agreement. Moody's rating confirmations and assignment are based on Hughes' leadership position in a number of satellite-related telecommunications businesses, its improving debt protection measurements and its overall financial flexibility. Moody's also confirmed the long term ratings of Hughes' 71.5% owned subsidiary, PanAmSat Corporation. This concludes a review of Hughes' ratings which began on January 17, 1997.
The ratings confirmed include:
Hughes Electronics Corporation – A3 rated guaranteed pass through certificates and secured floating rate notes; Prime-2 rated commercial paper.
PanAmSat Corporation – Baa2 rated $175 million 9.75% senior secured notes; Ba2 rated $460 million 11.375% senior subordinated discount notes and $373.7 million 12.75% senior subordinated notes.
Post restructuring, Hughes Electronics Corporation (Hughes Telecom) will retain only its telecommunications division. Hughes Telecom holds leadership positions in the manufacture of geostationary satellites for both governmental and commercial uses, the manufacture and operation of communication network systems such as VSAT business to business data communication and cellular telephone service, direct video broadcast service through DIRECTV, and the lease of satellite transponder capacity under both long and short term contracts to major media providers. The company's business is undergoing significant growth as demand for high speed communication services continues in both developed and developing countries around the world. In Moody's view, the company will be a significant user of cash over the intermediate term as it expands to meet the demand for satellites and satellite services. Initially, the restructuring will leave Hughes Telecom with a substantial cash position and minimal debt. As the company grows over time, a meaningful portion of its more liquid capital will likely be invested in less liquid assets. However, Moody's anticipates that Hughes' management is committed to maintaining a conservative debt posture as it manages future opportunities over the intermediate and long term. In addition, the substantial asset values in PanAmSat's satellite fleet, which could be monetized, provides significant additional flexibility to the company's financial position.
Hughes Telecom's DIRECTV business has not been profitable because the company has marketed heavily to grow its subscriber base. Moody's anticipates that this business will require several years of continued hardware subsidization to achieve the subscriber growth needed to reach breakeven profitability. In addition, DIRECTV may need to make substantial additional investments to improve the marketing structure of its product offering. Nonetheless, Hughes Telecom's other businesses are expected to be sufficiently strong to offset the losses and cash needs of DIRECTV.
PanAmSat's ratings remain below those of its parent given its higher leverage. A large portion of PanAmSat's debt is owed to Hughes as an intercompany loan. This debt is eliminated in consolidation resulting lower leverage at Hughes Telecom. Both PanAmSat and Hughes are subject to the risks of both launch and in-orbit failure which, except for opportunity costs, are mostly covered by contracts with major insurance providers.
Headquartered in Los Angeles, California, Hughes Electronics Corporation is the world's largest manufacturer of, and service provider through, geostationary satellites. PanAmSat Corporation, headquartered in Greenwich, Connecticut, is the world's largest operator of geostationary satellites.

No Related Data.
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