Why EchoStar Stock Crushed it on Friday
Key Points
This move erases more than $4 billion in debt.
The subsidiary contains the Dish TV and Sling TV operations.
EchoStar (NASDAQ:ECHO) was quite the star company in the eyes of many investors on Friday. A key subsidiary has emerged from bankruptcy, and at a stroke, significantly cleaned its parent's balance sheet. Mr. Market rewarded this progress by enthusiastically buying EchoStar shares; they closed that trading session almost 7% higher.
Exit stage right
EchoStar disclosed in a regulatory filing that its Dish DBS subsidiary, anchored by the Dish TV satellite offering and Sling TV streaming service, exited Chapter 11 bankruptcy.
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While in that state, Dish DBS reduced its indebtedness by roughly $4.35 billion, according to EchoStar. That's considerable, as the company's long-term indebtedness stood at over $16.2 billion at the end of June.
When it filed for Chapter 11 that month, EchoStar aimed to bundle both Dish DBS and its mobile telephony unit, Dish Wireless, into a single filing. A judge in a federal bankruptcy court ruled, however, that they were to be treated separately. The Dish Wireless bankruptcy remains ongoing.
A $4.35 billion cleaning
When a business eliminates a large chunk of debt, that's almost always a win. Investors were right to cheer this major victory for EchoStar, but I'd caution that the sprawling company isn't out of the woods yet. Competition is thick and heavy in TV broadcasting these days, and the status of Dish Wireless isn't ideal.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.