Satellite-television mogul Charlie Ergen is throwing his weight around in the bond markets, picking fights with Phil Falcone’s Harbinger Capital and Jim Dondero’s Highland Capital as he tries to expand the airwaves under his control.
Since 2008, Ergen has used his two public companies, Dish Network and EchoStar, to buy about $800 million of bonds and loans in two bankrupt satellite operators, TerreStar Networks and DBSD North America, aiming to swap the debt for controlling stakes.
EchoStar stands poised to snatch TerreStar from Harbinger, but Dish will likely have to settle for a minority stake in DBSD.
Ergen wants TerreStar and DBSD for the broadband spectrum they control. He could use that capacity to help Dish and EchoStar face competition from video-over-Internet providers or flip it to the highest bidder if a broadband shortage develops, said people involved in both bankruptcies.
That strategy casts the Denver native as an unlikely doppelganger to Falcone, a distressed-debt fund manager and broadband evangelist who has staked $3 billion on becoming a satellite mogul by building a nationwide wireless network called LightSquared.
While Ergen has tried to buy companies outright in the past, he has become increasingly adept at a strategy Falcone once specialized in known as loan-to-own, exchanging discounted debt of struggling companies for stock. Dish and EchoStar bought at least some of the DBSD and TerreStar bonds in 2008 and 2009 for less than 50 cents on the dollar.
Those trades pitted Ergen against hedge funds, including Harbinger, Highland, Solus Alternative Asset Management and Stark Investments. The funds covet the TerreStar and DBSD spectrum because they believe it will gain value as demand for wireless media overwhelms broadband capacity. Highland and a group of hedge funds owning DBSD bonds have fought off Dish in that bankruptcy, while EchoStar remains in talks about TerreStar with Harbinger, Solus and Stark, which hold debt and equity in the company.
Ergen declined to comment. But on a recent Dish earnings call, he said he is focused on buying or creating protean “building blocks” that he can use to upgrade his service once a dominant broadband medium emerges. Additional spectrum could allow Dish to launch a mobile video offering or to offer existing customers satellite Internet service.
