DirecTV has been placed on negative credit watch by ratings agencies S&P Global and Fitch following its announcement that it plans to merge with Dish Network in a deal for $1 and $9.75 billion in debt that is expected to close in late 2025.
The firms said the move reflects the loss of some governance protections as TPG buys out AT&T’s remaining 70% stake in the company, giving the private equity firm full ownership of the combined entity.
“The acquisition provides material immediate benefits like increased scale and significant synergies, which are credit positive in the near to mid-term,” Fitch wrote Monday. “However, Fitch believes that the ratings will be pressured by secular industry challenges, including the declining satellite pay-tv subscribers and decreasing revenue trends.”
S&P further noted that the pay TV model has been under pressure as programmers raise rates and shift their best content from linear to streaming, as distributors have limited flexibility to create tailored channel lineups to due minimum penetration requirements and as YouTube TV is gaining significant market share. It pointed out that DirecTV saw a 15% year-over-year decline in subscribers in the second quarter of 2024 and that it expects similar trends to occur across the industry.
“While having greater scale could allow DirecTV more negotiating leverage with programmers to help slow rate increases and possibly provide more flexibility around program packages, we believe it will be insufficient to counterbalance these competitive forces,” it added.
Fitch anticipates that the companies’ combined revenues will decline in high single to low double digits in 2024 and ’25, primarily due to declines in pay-TV satellite subscribers and U-Verse subscribers, partly offset by higher average revenue per user.
Meanwhile, S&P warned that credit metrics will deteriorate with higher debt, warning that DirecTV will be “assuming roughly $10 billion of Dish DBS’ debt at a multiple of about 3.5x EBITDA.” It expects the combined entity’s debt to EBITDA ratio to rise to 2.7 times in 2025, up from about 1.4 times in the last 12 months, and 2.9 times in 2026 due to ongoing subscriber losses. However, it said that would improve to 2.3 times in 2027 from debt reduction and the realization of cost synergies.
DirecTV said they expect at least $1 billion in cost synergies per year, which will be achieved by the third anniversary of the deal’s closing. The company has also said it will have leverage position just over two times and plans to reduce that to under two within 12 months.
S&P estimates that net synergies could total at least $1 billion by 2029, representing about 15% of Dish’s total operating expenses, but noted the realization of that would occur gradually over three to four years, starting at about $400 million in 2026.
Available synergies include reduced content spending from rate card disparities and future negotiations with programmers; the elimination of duplicative overhead such as corporate positions field services, call centers and sales; the consolidation of streaming platforms and migration of Denver systems to DirecTV; and the elimination of friction created by customers switching between the two satellite TV giants, per S&P.
Looking ahead, Fitch projects that DirecTV’s EBITDA margins will grow to the mid to high 20% range, supported by acquisition synergies, and free cash flow after tax distributions ranging between $2 billion and $2.5 billion annually in 2026 and ’27.
S&P projects EBITDA margins will remain at or above 25% through 2028 due to operational efficiencies enabled by the merger. It added that the company’s free operating cash flow to debt ratio would temporarily fall below 15% in 2026 before rising to around 17% in 2027.
The firms will resolve their negative credit watches and downgrade the company’s ratings once the acquisition closes. In the event that the deal doesn’t close, Fitch said it would downgrade the company due to prolonged declines in revenue and EBITDA and leverage greater than 3 times without a credible deleveraging plan or a more aggressive financial policy. While it doesn’t anticipate an upgrade in the near term, it said it would if the company can successfully execute on initiatives to return to revenue and EBITDA growth and leverage under 2 times.
Shares of Dish parent EchoStar was down around 3% at the close of Tuesday’s trading session, while AT&T shares rose slightly by 0.66%.
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