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Report: “Never play poker with Ergen”

February 10, 2023

Charlie Ergen, co-founder of Dish and EchoStar, has something of a reputation as a poker player. Indeed, he was allegedly once banned from a casino at Lake Tahoe many years ago.

A report from Tim Farrar of TMF Associates focuses on a filing by Globalstar which has notified the market that it had entered into an agreement with MDA and Rocket Lab for 17 new satellites. Farrar’s report examines the implications on the immediate cash due from Globalstar to the builders, and the prospects for Globalstar’s future financing. Egren, Apple and others are intimately wrapped up in the consequences of the refinancing.

In essence, Globalstar’s January 31st filing says that $20 million due to the sat-builders will be delayed until March 15th. Globalstar admits that it is looking at refinancing but cannot predict when – or if – it the exercise be finalised.

The problem is that Globalstar has first to close its “first lien debt agreement” of $150 million with Ergen’s EchoStar. Then, and only then, can Apple kick in with its $450 million of extra funding and related to the September 2022 deal whereby Apple planned to expand its iPhone emergency – and beyond – services around the plant, and using Globalstar’s proposed satellites.

Farrar writes: “Of course there was no chance whatsoever that Charlie Ergen would agree to exchange first lien debt with a ‘Payment in Kind’ interest rate of 13.5 per cent for preferred stock that would be subordinate to ~$500 million of new first lien debt with an interest rate of 4-7 per cent, so the only plausible reason for [Globalstar chairman] Jay Monroe to agree to these terms was a Hail Mary bet that he could find a buyer for Globalstar before the deadline occurred for Echostar’s debt conversion.”

On February 13th, 90-days after the Apple/Globalstar iPhone service started, someone has to make a move. Farrar suggests that Ergen is lining up a bid for Globalstar, noting: “The [Globalstar] statement [in its 8-K January 31st filing] that “maximizing shareholder value is the driving consideration” suggests that Ergen will soon (or perhaps already has) submitted a “non-frivolous proposal” to acquire Globalstar, presumably at a very low price, given that Globalstar will soon be in breach of its obligations to Apple. This will trigger the 30 (business) day period for Globalstar to advise Apple of a sale transaction and then negotiate on an exclusive basis, which would also run through the mid-March satellite payment deferral period (assuming Ergen has now made an offer for the company).”

“The most interesting question is what Ergen would seek to gain from Apple, if he was to either enable Apple to buy Globalstar at a low price or buy Globalstar himself (presumably through Echostar) and continue the partnership. One obvious possibility could be to collaborate to include the 2GHz satellite spectrum held by DISH and Echostar into future iPhones for additional NTN capacity. Perhaps not entirely coincidentally, Echostar announced plans to build a 28 satellite LEO IoT network just last week,” adds Farrar. But Ergen is famous for keeping his cards very close to his chest.

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