Falling Primestar
S&P downgrades satcaster's credit rating
S&P cut Primestar's ratings to CCC+, for subordinated debt, and B for corporate credit and bank debt, in the wake of the collapse of Primestar's $1.1 billion acquisition of News Corp.'s high-powered satellite license last week. Stock of TCI Satellite Entertainment, Primestar's biggest shareholder, fell 3¢ Wednesday to $1.03.
Growth limited
S&P said loss of the News Corp. satellite deal "severely limits the long-term growth strategy of the company." Primestar had planned to use the News Corp. license to upgrade its service from medium-powered to high-powered, making it competitive with the other two major satcasters DirecTV and Echostar, but opposition from the Justice Department blocked the deal.
Primestar is now working on alternative business strategies, such as using a limited high-powered license it has available. But it needs capital to expand because adding subscribers costs money, and Primestar's $275 million of available capital is being eaten up at the rate of $40 million to $50 million a month.
Back to basics
Primestar CEO Carl Vogel said last week he hoped the financial markets would settle down and allow the satcaster to raise more money, but, if capital isn't available, he said the company could abandon expansion plans and simply operate with its existing subscriber base of 2.2 million customers.
S&P's ratings downgrade will only aggravate Primestar's capital-raising difficulties. Vogel did not return calls seeking comment.
