Long-Term Debt and Finance Lease Obligations

9 Months Ended

Sep. 30, 2023

Long-Term Debt and Finance Lease Obligations

Long-Term Debt and Finance Lease Obligations

9.Long-Term Debt and Finance Lease Obligations

Fair Value of our Long-Term Debt

The following table summarizes the carrying amount and fair value of our debt facilities as of September 30, 2023 and December 31, 2022:

	As of
	September 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
5% Senior Notes due 2023 (1)	$	—	$	—	$	1,443,179	$	1,441,635
2 3/8% Convertible Notes due 2024 (2)		951,168		916,688		1,000,000		906,970
5 7/8% Senior Notes due 2024 (3)		1,989,139		1,855,529		2,000,000		1,870,940
0% Convertible Notes due 2025 (4)		1,957,197		1,321,108		2,000,000		1,287,540
7 3/4% Senior Notes due 2026		2,000,000		1,504,760		2,000,000		1,620,280
3 3/8% Convertible Notes due 2026 (5)		2,908,801		1,757,643		3,000,000		1,894,230
5 1/4% Senior Secured Notes due 2026		2,750,000		2,338,683		2,750,000		2,336,813
11 3/4% Senior Secured Notes due 2027 (6)		3,500,000		3,522,750		2,000,000		2,071,240
7 3/8% Senior Notes due 2028		1,000,000		634,930		1,000,000		708,320
5 3/4% Senior Secured Notes due 2028		2,500,000		1,928,025		2,500,000		2,013,675
5 1/8% Senior Notes due 2029		1,500,000		841,710		1,500,000		976,755
Other notes payable		116,800		116,800		138,303		138,303
Subtotal		21,173,105	$	16,738,626		21,331,482	$	17,266,700
Unamortized deferred financing costs and other debt discounts, net		(68,283)				(105,697)
Finance lease obligations (7)		139,189				123,353
Total long-term debt and finance lease obligations (including current portion)	$	21,244,011			$	21,349,138

(1) We had repurchased or redeemed the principal balance of our 5% Senior Notes due 2023 as of March 15, 2023, the instrument’s maturity date.

(2) During the three and nine months ended September 30, 2023, we repurchased approximately $44 million and $49 million, respectively, of our 2 3/8% Convertible Notes due 2024 in open market trades. The remaining balance of approximately $951 million matures on March 15, 2024. Our 2 3/8% Convertible Notes due 2024 are included in “Current portion of long-term debt and finance lease obligations” on our Condensed Consolidated Balance Sheets as of September 30, 2023.

(3) During both the three and nine months ended September 30, 2023, we repurchased approximately $11 million of our 5 7/8% Senior Notes due 2024 in open market trades. The remaining balance of approximately $1.989 billion matures on November 15, 2024.

(4) During the three and nine months ended September 30, 2023, we repurchased approximately zero and $43 million, respectively, of our 0% Convertible Notes due 2025 in open market trades. The remaining balance of approximately $1.957 billion matures on December 15, 2025.

(5) During the three and nine months ended September 30, 2023, we repurchased approximately zero and $91 million, respectively, of our 3 3/8% Convertible Notes due 2026 in open market trades. The remaining balance of approximately $2.909 billion matures on August 15, 2026.

(6) On January 26, 2023, we issued an additional $1.5 billion aggregate principal amount of our 11 3/4% Senior Secured Notes due 2027.

(7) Disclosure regarding fair value of finance leases is not required.

We estimated the fair value of our publicly traded long-term debt using market prices in less active markets (Level 2).

Future Capital Requirements

We have and expect to continue to incur significant expenditures in 2023 and 2024 related to our 5G Network Deployment, including, but not limited to, capital expenditures associated with our 5G Network Deployment, and the potential purchase of additional wireless spectrum licenses.  The amount of capital required will also depend on, among other things, debt maturities (as detailed in the table above), the growth of our Retail Wireless business unit and the levels of investment necessary to support potential strategic initiatives that may arise from time to time. We do not currently have cash, marketable investment securities balances and/or projected future cash flows to fully fund our 2024 debt maturities. Since we reached our 5G Network Deployment milestone of 70% of the U.S. population, we expect our capital expenditures will decline in the near term. However, as we prepare for our next build-out requirements in 2025, we expect our capital expenditures to increase as we approach this deadline.

To address any remaining capital needs in the near-term, including repayment of our March 2024 debt maturity, we plan to implement one or more of the following options, among other things: raise additional capital, complete the Merger, pursue strategic transactions and/or advance additional cost reduction initiatives. We believe it is probable the Merger will close prior to the March 2024 debt maturity, however, there can be no assurances. Our cost reduction initiatives may include, among other things, a decrease in the anticipated rate at which we acquire subscribers, a reduction to certain selling, general and administrative expenses, and a further reduction in our capital expenditures. Any additional capital may not be available at the historical interest rates of our long-term debt, as detailed in the table above, or at all, due to, among other things, the current market rate environment.

Convertible Notes

Merger Consideration

On the terms and subject to the conditions set forth in the Amended Merger Agreement, prior to or at the Effective Time, we and EchoStar will cooperate and take all actions required to amend the terms and conditions of the Convertible Notes and the convertible note hedge transactions to cause each of the Convertible Notes that are issued and outstanding immediately prior to the Effective Time to remain issued and outstanding but to represent a right, on substantially the same terms and conditions as applied to each of the corresponding Convertible Notes immediately prior to the Effective Time, to convert into shares of EchoStar Class A Common Stock, at a conversion rate equal to the product of (A) the conversion rate underlying each such right to convert into shares of our Class A common stock immediately prior to the Effective Time and (B) the Exchange Ratio. On the terms and subject to the conditions set forth in the Amended Merger Agreement, prior to or at the Effective Time, we and EchoStar will cooperate and take all actions required to amend the terms and conditions of the warrant transactions to cause each warrant that is issued and unexercised immediately prior to the Effective Time to remain issued and unexercised but to be converted into a right, on substantially the same terms and conditions as applied to the corresponding warrant immediately prior to the Effective Time, to acquire shares of EchoStar Class A Common Stock. The number of shares of EchoStar Class A Common Stock subject to each such warrant will be equal to the product of (A) the number of shares of our Class A common stock subject to the corresponding warrant immediately prior to the Effective Time and (B) the Exchange Ratio, and the per share exercise price for the shares of EchoStar Class A Common Stock issuable upon exercise of each such warrant will be determined by dividing (A) the per share exercise price for the shares of our Class A common stock otherwise purchasable pursuant to the corresponding warrant immediately prior to the Effective Time by (B) the Exchange Ratio, subject, in each case, to any adjustments to the terms of the warrants required or permitted pursuant to the terms of the warrant transactions.

2 3/8% Convertible Notes due 2024

On March 17, 2017, we issued $1.0 billion aggregate principal amount of the Convertible Notes due March 15, 2024 in a private placement. Interest accrues at an annual rate of 2 3/8% and is payable semi-annually in cash, in arrears on March 15 and September 15 of each year.

The Convertible Notes due 2024 are:

● our general unsecured obligations;

● ranked senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes due 2024;

● ranked equally in right of payment with all of our existing and future unsecured senior indebtedness;

● ranked effectively junior to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness;

● ranked structurally junior to all indebtedness and other liabilities of our subsidiaries; and

● not guaranteed by our subsidiaries.

We may not redeem the Convertible Notes due 2024 prior to the maturity date.  If a “fundamental change” (as defined in the related indenture) occurs prior to the maturity date of the Convertible Notes due 2024, holders may require us to repurchase for cash all or part of their Convertible Notes due 2024 at a repurchase price equal to 100% of the principal amount of such Convertible Notes due 2024, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.

The indenture related to the Convertible Notes due 2024 does not contain any financial covenants and does not restrict us from paying dividends, issuing or repurchasing our other securities, issuing new debt (including secured debt) or repaying or repurchasing our debt.

Subject to the terms of the related indenture, the Convertible Notes due 2024 may be converted at an initial conversion rate of 12.1630 shares of our Class A common stock per $1,000 principal amount of Convertible Notes due 2024 (equivalent to an initial conversion price of approximately $82.22 per share of our Class A common stock) (the “Initial Conversion Rate”), at any time on or after October 15, 2023 through the second scheduled trading day preceding the maturity date. Holders of the Convertible Notes due 2024 will also have the right to convert the Convertible Notes due 2024 at the Initial Conversion Rate prior to October 15, 2023, but only upon the occurrence of specified events described in the related indenture. The conversion rate is subject to anti-dilution adjustments if certain events occur. Upon any conversion, we will settle our conversion obligation in cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election.

0% Convertible Notes due 2025

On December 21, 2020, we issued $2.0 billion aggregate principal amount of the Convertible Notes due December 15, 2025 in a private placement. These notes will not bear interest, and the principal amount of the Notes will not accrete.

The Convertible Notes due 2025 are:

● our general unsecured obligations;

● ranked senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes due 2025;

● ranked equally in right of payment with all of our existing and future unsecured senior indebtedness;

● ranked effectively junior to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness;

● ranked structurally junior to all indebtedness and other liabilities of our subsidiaries; and

● not guaranteed by our subsidiaries.

We may not redeem the Convertible Notes due 2025 prior to the maturity date. If a “fundamental change” (as defined in the related indenture) occurs prior to the maturity date of the Convertible Notes due 2025, holders may require us to repurchase for cash all or part of their Convertible Notes due 2025 at a repurchase price equal to 100% of the principal amount of such Convertible Notes due 2025, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.

The indenture related to the Convertible Notes due 2025 does not contain any financial covenants and does not restrict us from paying dividends, issuing or repurchasing our other securities, issuing new debt (including secured debt) or repaying or repurchasing our debt.

Subject to the terms of the related indenture, the Convertible Notes due 2025 may be converted at an initial conversion rate of 24.4123 shares of our Class A common stock per $1,000 principal amount of the Convertible Notes due 2025 (equivalent to an initial conversion price of approximately $40.96 per share of our Class A common stock) (the “Initial Conversion Rate”), at any time on or after July 15, 2025 through the second scheduled trading day preceding the maturity date. Holders of the Convertible Notes due 2025 will also have the right to convert the Convertible Notes due 2025 at the Initial Conversion Rate prior to July 15, 2025, but only upon the occurrence of specified events described in the related indenture. The conversion rate is subject to anti-dilution adjustments if certain events occur. Upon any conversion, we will settle our conversion obligation in cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election.

3 3/8% Convertible Notes due 2026

On August 8, 2016, we issued $3.0 billion aggregate principal amount of the Convertible Notes due August 15, 2026 in a private offering. Interest accrues at an annual rate of 3 3/8% and is payable semi-annually in cash, in arrears on February 15 and August 15 of each year.

The Convertible Notes due 2026 are:

● our general unsecured obligations;

● ranked senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Convertible Notes due 2026;

● ranked equally in right of payment with all of our existing and future unsecured senior indebtedness;

● ranked effectively junior to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness;

● ranked structurally junior to all indebtedness and other liabilities of our subsidiaries; and

● not guaranteed by our subsidiaries.

We may not redeem the Convertible Notes due 2026 prior to the maturity date. If a “fundamental change” (as defined in the related indenture) occurs prior to the maturity date of the Convertible Notes due 2026, holders may require us to repurchase for cash all or part of their Convertible Notes due 2026 at a specified make-whole price equal to 100% of the principal amount of such Convertible Notes due 2026, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.

The indenture related to the Convertible Notes due 2026 does not contain any financial covenants and does not restrict us from paying dividends, issuing or repurchasing our other securities, issuing new debt (including secured debt) or repaying or repurchasing our debt.

Subject to the terms of the related indenture, the Convertible Notes due 2026 may be converted at an initial conversion rate of 15.3429 shares of our Class A common stock per $1,000 principal amount of Convertible Notes due 2026 (equivalent to an initial conversion price of approximately $65.18 per share of our Class A common stock) (the “Initial Conversion Rate”), at any time on or after March 15, 2026 through the second scheduled trading day preceding the maturity date. Holders of the Convertible Notes due 2026 will also have the right to convert the Convertible Notes due 2026 at the Initial Conversion Rate prior to March 15, 2026, but only upon the occurrence of specified events described in the related indenture. The conversion rate is subject to anti-dilution adjustments if certain events occur. Upon any conversion, we will settle our conversion obligation in cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election.

Convertible Note Hedge and Warrant Transactions

In connection with the offering of the Convertible Notes due 2026, we entered into convertible note hedge transactions with certain option counterparties. The convertible note hedge transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes due 2026, the number of shares of our Class A common stock underlying the Convertible Notes due 2026, which initially gives us the option to purchase approximately 46 million shares of our Class A common stock at a price of approximately $65.18 per share. The total cost of the convertible note hedge transactions was $635 million. Concurrently with entering into the convertible note hedge transactions, we also entered into warrant transactions with each option counterparty whereby we sold to such option counterparty warrants to purchase, subject to customary anti-dilution adjustments, up to the same number of shares of our Class A common stock, which initially gives the option counterparties the option to purchase approximately 46 million shares of our Class A common stock at a price of approximately $86.08 per share.

We received $376 million in cash proceeds from the sale of these warrants. For us, the economic effect of these transactions is to effectively raise the initial conversion price from approximately $65.18 per share of our Class A common stock to approximately $86.08 per share of our Class A common stock (thus effectively raising the conversion premium on the Convertible Notes due 2026 from approximately 32.5% to approximately 75%).  In accordance with accounting guidance on hedge and warrant transactions, the net cost incurred in connection with the convertible note hedge and warrant transactions are recorded as a reduction in “Additional paid-in capital” within “Stockholders’ Equity (Deficit)” on our Consolidated Balance Sheets as of December 31, 2016.

We will not be required to make any cash payments to each option counterparty or its affiliates upon the exercise of the options that are a part of the convertible note hedge transactions, but will be entitled to receive from them a number of shares of Class A common stock, an amount of cash or a combination thereof. This consideration is generally based on the amount by which the market price per share of Class A common stock, as measured under the terms of the convertible note hedge transactions, is greater than the strike price of the convertible note hedge transactions during the relevant valuation period under the convertible note hedge transactions. Additionally, if the market price per share of Class A common stock, as measured under the terms of the warrant transactions, exceeds the strike price of the warrants during the measurement period at the maturity of the warrants, we will owe each option counterparty a number of shares of Class A common stock in an amount based on the excess of such market price per share of Class A common stock over the strike price of the warrants. However, as specified under the terms of the warrant transactions, we may elect to settle the warrants in cash.

Intercompany Loan

The net proceeds from the offering of our 5 1/4% Senior Secured Notes due 2026 and our 5 3/4% Senior Secured Notes due 2028 (the “Senior Notes”) issued on November 26, 2021 were used by DISH DBS to make an intercompany loan to DISH Network pursuant to a Loan and Security Agreement dated November 26, 2021 (together with potential future advances to DISH Network, the “Intercompany Loan”) between DISH DBS and DISH Network in order to finance the purchase of wireless spectrum licenses and for general corporate purposes, including our 5G Network Deployment. The Intercompany Loan will mature in two tranches, with the first tranche maturing on December 1, 2026 (the “2026 Tranche”) and the second tranche maturing on December 1, 2028 (the “2028 Tranche”). DISH DBS may make additional advances to DISH Network under the Intercompany Loan, and on February 11, 2022, DISH DBS advanced an additional $1.5 billion to DISH Network under the Intercompany Loan 2026 Tranche. Interest accrues and is payable semiannually, and interest payments with respect to the Intercompany Loan are, at our option, payable in kind for the first two years. In the third year, a minimum of 50% of each interest payment due with respect to each tranche of the Intercompany Loan must be paid in cash. Thereafter, interest payments must be paid in cash. Interest will accrue: (a) when paid in cash, at a fixed rate of 0.25% per annum in excess of the interest rate applicable to, in the case of the 2026 Tranche, the 5 1/4% Senior Secured Notes due 2026, and in the case of the 2028 Tranche, the 5 3/4% Senior Secured Notes due 2028 (each, the “Cash Accrual Rate” with respect to the applicable tranche); and (b) when paid in kind, at a rate of 0.75% per annum in excess of the Cash Accrual Rate for the applicable tranche. As of September 30, 2023, the total Intercompany Loan amount outstanding plus interest paid in kind was $7.382 billion. The cash proceeds of the Intercompany Loan of $6.750 billion were paid to the FCC in connection with Weminuche’s winning bids in Auction 110. As a result, the Intercompany Loan is secured by Weminuche’s interest in the wireless spectrum licenses acquired in Auction 110 with such cash proceeds up to the total loan amount outstanding including interest paid in kind. The remaining balance of our winning bids of approximately $455 million was paid from cash and marketable investment securities balances at that time, for a total of approximately $7.205 billion. Under certain circumstances, DISH Network wireless spectrum licenses (valued based upon a third-party valuation) may be substituted for the collateral. The Intercompany Loan is not included as collateral for the Senior Secured Notes, and the Senior Secured Notes are subordinated to DISH DBS’s existing and certain future unsecured notes with respect to certain realizations under the Intercompany Loan and any collateral pledged as security for the Intercompany Loan.