EchoStar Communications Corp. is close to raising an additional $5.5 billion in cash from two banks to help in its bid for rival direct broadcast satellite provider DirecTV Inc., sources confirmed last week.
According to sources familiar with the situation, EchoStar has secured a commitment for half of the bank loan from UBS Warburg LLC and is close to landing the rest from Deutsche Bank AG. UBS has served as an advisor to EchoStar in its original bid for DirecTV.
According to one investment banker who asked not to be named, UBS has made past commitments to help fund the EchoStar bid and has talked to other bankers to help assume some of the risk.
"Deutsche Bank would work in cooperation with UBS," the investment banker said. "I'm not sure they would contribute additional capital. It would be more like serving as an underwriter, to help UBS lay off some of the risk."
The banker said that the money would serve as a bridge loan pursuant to a sale of Hughes's 80 percent interest in satellite-services arm PanAmSat Corp., which would allow EchoStar to pay back a portion of the loan. The rest would most likely be repaid through the issuance of high-yield debt.
The additional cash would appear to give EchoStar — which made a $31.9 billion unsolicited offer for DirecTV in August — a leg up on rival News Corp., which has been negotiating with DirecTV parent Hughes Electronics Corp. for more than one year.
General Motors Corp., which owns 34 percent of Hughes, has demanded at least $5 billion in cash as part of any deal.
Though terms of the News Corp. proposal haven't been made public, News plans to combine DirecTV with its Sky Global Networks Inc. satellite venture, which it claims would be valued at $50 billion.
But the lack of details has left some analysts skeptical of the News deal, mainly because the acquired company — DirecTV — would be Sky Global's most valuable asset.
EchoStar communications director Judianne Atencio declined comment last week.
In a conference call with analysts to discuss its third-quarter results, Hughes Electronics CEO Jack Shaw said his company continues to evaluate both the EchoStar and News proposals. He added that negotiations are "nearing the home stretch."
But Hughes has said that a deal was imminent for about a year. And though a willingness to pony up additional cash would seem to give EchoStar the advantage in bidding for DirecTV, some observers said there are still qualms concerning potential regulatory problems inherent in a DirecTV-EchoStar combination.
