(Bloomberg) — EchoStar Corp.’s mega-sale of spectrum licenses to AT&T Inc. sent some of its $25 billion of debt soaring from distressed levels, vindicating bondholders who withstood years of brinkmanship and legal drama with the wireless and pay-TV empire led by billionaire Charlie Ergen.

It’s a potential game changer for a heavily-indebted business that had a contentious relationship with its creditors. Bondholders battled through controversial asset moves and the litigation that ensued, while enduring Ergen’s skirmishes with Elon Musk and regulators and most recently stomaching skipped coupon payments and the threat of bankruptcy.

Proceeds from the $23 billion transaction will largely go toward paying off borrowings of Ergen’s sprawling businesses, a welcome development for debt investors that made bonds of EchoStar subsidiaries including Dish Network the biggest gainers in the US high yield secondary market on Tuesday. 

Among gainers, Hughes Satellite Systems Corp.’s 6.625% 2026 notes rose as much as 21 cents on the dollar to 96.5 cents, according to Trace, and Dish’s 5.125% 2029 bonds jumped as much as 11.625 cents to 83 cents. Meanwhile, Dish DBS five-year senior credit-default swaps tightened 13 points to 9 points upfront, the most in 11 months, according to ICE Data Services. EchoStar shares also rallied. 

The cash influx could ultimately help settle a lawsuit brought by bondholders after Ergen moved Dish’s crown-jewel wireless spectrum licenses — among other assets — out of their reach. And the deal eases some overhang from a fight with the Federal Communications Commission and its chairman Brendan Carr over EchoStar’s management of its spectrum rights, according to New Street Research analyst Blair Levin.

While the transaction doesn’t directly address FCC inquiries into whether EchoStar complied with its spectrum build-out requirements or could share some of its other spectrum, Carr accomplished what he claimed was his primary objective: putting EchoStar spectrum “in a position to be more intensely utilized,” Levin wrote in an Aug. 26 note.

Carr also accomplished another important objective, Levin wrote — reallocating spectrum without putting EchoStar into Chapter 11, “something the president encouraged him to avoid,” Levin wrote. “Thus, Carr can tell the president he succeeded.”

EchoStar is the result of the merger of Dish Network Corp. and EchoStar in January 2024, reuniting Ergen’s satellite empire. Federal regulators have been pushing EchoStar to sell some of its airwaves after concerns it had failed to put valuable slices of wireless spectrum to use, Bloomberg reported in July. The FCC launched an investigation in May into whether EchoStar was meeting its obligations for its wireless and satellite spectrum rights.

The company, which has about $25 billion in long-term debt, initially skipped a $326 million cash interest payment in May, citing impacts from the FCC’s review over its compliance with obligations to build a nationwide 5G network. It subsequently made the payment.

Using the proceeds from its deal with AT&T, EchoStar plans to repay a $3.5 billion Dish Network note backed by 600MHz of spectrum and a $7.6 billion inter-company notes attached to 3.45GHz, it said in a filing Tuesday. It should also deliver $3 billion of cash to its DBS unit, which will allow DBS to pay off all $4.8 billion of debt maturing next year after including cash and hand and cash generated in the interim.

It will also deliver almost $5 billion of proceeds to EchoStar, which became the recipient of most of the inter-company loan in an asset transaction last year.

–With assistance from James Crombie.

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