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Rating Action:

MOODY'S CONFIRMS HUGHES ELECTRONICS CORP. (Ba3 SR. SEC.) AND PANAMSAT CORP. (Ba2 SR. SEC. AND Ba3 SR. UNSEC.) DEBT RATINGS FOLLOWING TERMINATION OF MERGER AGREEMENT WITH ECHOSTAR COMMUNICATIONS CORP.

11 Dec 2002
MOODY'S CONFIRMS HUGHES ELECTRONICS CORP. (Ba3 SR. SEC.) AND PANAMSAT CORP. (Ba2 SR. SEC. AND Ba3 SR. UNSEC.) DEBT RATINGS FOLLOWING TERMINATION OF MERGER AGREEMENT WITH ECHOSTAR COMMUNICATIONS CORP.

About $4.5 Billion of Debt Securities Affected.

New York, December 11, 2002 -- Moody's Investors Service has confirmed Hughes Electronic Corporation's (Hughes) Ba3 senior secured and senior implied debt ratings, and confirmed PanAmSat Corporation's (PanAmSat) Ba2 senior secured debt and senior implied ratings and Ba3 senior unsecured debt rating.

The rating actions result from the announcement yesterday that General Motors Corporation, its subsidiary Hughes and EchoStar Communications Corporation (EchoStar), have reached a settlement to terminate the proposed merger of Hughes and EchoStar, effective immediately. Under the terms of the settlement, EchoStar has paid to Hughes $600 million in cash, and Hughes will retain its 81% ownership position in PanAmSat. The confirmations conclude reviews that were originally initiated on October 30, 2001 when Hughes signed an agreement to merge with EchoStar. The outlook for the Hughes and PanAmSat ratings is stable.

With uncertainty surrounding Hughes' proposed merger with EchoStar now removed, the credit focus turns to liquidity and permanent financing for the company's long-term needs. The recent bank loan refinancing along with the Echostar proceeds offer some temporary breathing room until August of 2003, when the current bank facilities expire. An important consideration for the company's credit ratings was the expected payment by EchoStar to Hughes of the $2.7 billion purchase price of Hughes' interest in PanAmSat, which was intended to occur even in the event of regulatory objections to an EchoStar-Hughes merger. Since that portion of the agreement is no longer a consideration, near-term refinancing risk is very high until more permanent financing is executed as expected. The EchoStar proceeds are expected to be applied to Hughes' bank facility term loan as called for by the indenture, and current debt levels are not very high. However, the company is still a net user of cash and therefore will steadily grow its debt levels for the foreseeable future and will likely more than double over the next year. The biggest users of cash are expected to be the company's Hughes Network System (HNS) division, as it continues investing in its Spaceway project to launch and offer satellite delivered broadband connectivity to businesses, and DirecTV Latin America (DLA), which struggles to rationalize its cost structure in the face of weakened economies and significant foreign exchange mismatches between its revenues and costs. Also, over the next 12 months, the company faces the possiblity of having to fund a purchase price adjustment related to its sale of its satellite manufacturing division to The Boeing Company and funding a cash put obligation to DLA which can be triggered by one its partners Grupo Clarin. Over the next 18 months, if there isn't significant free cashflow improvement at DirecTV US, the company's most important division, some improvement in DLA's business plan or elimination of that business altogether, and a return to free cashflow generation at HNS, additional pressure on the rating will occur. However, Moody's believes that a renewed negotiation for the sale of GM's interest in Hughes to News Corporation (Baa3 senior unsecured) is reasonably possible if not probable, as Newscorp had expressed significant interest in the past and there isn't a long list of other interested parties. Such a transaction would permit News Corp to: 1) place DirecTV among other similar continental platforms owned by News Corp; 2) force some merger and rationalization of operations between DLA and Sky Latin America (including Innova, S. de R.L. (B3 senior implied rating) and Net Sat Servicos (Caa1 senior implied rating-on review for downgrade), both of which are controlled by News Corp); and 3) revisit the strategic importance of HNS and PanAmSat to the core pay TV distribution businesses. If such a transaction isn't effected, we believe that the aforementioned pressure will in fact be evident.

PanAmSat's ownership uncertainty is also cleared up for now, though as mentioned above, longer-term uncertainty is an issue. The current rating continues to be impacted and constrained by its ownership by its weaker credit-positioned controlling parent Hughes, although, it is reasonably ring-fenced by its bank covenants and restrictions. The company generates good free cashflow and is moderately leveraged. However, it faces the conflicting negative impact from its exposure to DLA as some of its revenues are derived from that Hughes business. Moody's believes that over the near-term, those revenues are likely to remain, but are significantly in question beyond the next 18 to 24 months, which could materially reduce free cashflows if those transponders cannot be leased to other customers at similar price levels. In addition, the company's known desire to participate in industry consolidation, is not factored into the current rating given uncertainty as to both likelihood and potential financing, and the fact that consolidation that might include PanAmSat could be either positive or negative for the company's credit ratings.

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.

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.

New York
Neil P. Begley
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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