DIRECTV 2002 Annual Report Download - page 71

HUGHES ELECTRONICS CORPORATION
downgrade pending the outcome of the EchoStar Merger, was revised to stable, and Moody’s stated
that the credit focus had turned to liquidity and Hughes obtaining permanent financing for its long-term
needs. The rating action resulted from the December 10, 2002 announcement that Hughes received a
$600 million cash settlement payment related to the terminated merger agreement with EchoStar.
On December 11, 2002, Standard & Poor’s Ratings Services (“S&P”) affirmed its long-term
corporate credit rating on Hughes of B+ and its rating of BB- on Hughes’ senior secured credit facility.
At the same time, S&P revised its Credit Watch implications on Hughes from negative to developing.
The rating action stated that the termination of the EchoStar merger agreement on December 10, 2002
provided meaningful cash to Hughes and enabled Hughes to freely pursue strategic alternatives. S&P
further noted that considerable uncertainty surrounds the eventual ownership of Hughes and that a
new assessment would be needed if Hughes enters into merger discussions with another party.
DIRECTV
On February 19, 2003, Moody’s assigned to DIRECTV a Ba2 senior secured rating with respect to
its senior secured credit facilities and a B1 senior unsecured rating on the $1.4 billion of senior
unsecured notes. Moody’s has also assigned a Ba3 senior implied and a B2 issuer rating to DIRECTV.
The outlook is stable. The rating outlook presumed diminishing capital and investment requirements,
combined with operating profit improvement to generate eventual free cashflow, and therefore the
ratings were considered to be moderately prospective.
On February 12, 2003, S&P assigned a BB- rating on the senior secured credit facilities and a B
rating on the $1.4 billion of senior unsecured notes. The ratings were placed on Credit Watch with
positive implications, based on S&P’s assessment of the likelihood that Hughes or DIRECTV could be
acquired by an entity with higher credit quality than Hughes’ B+ corporate credit rating.
PanAmSat
On December 11, 2002 Moody’s confirmed PanAmSat’s Ba2 senior secured debt rating and Ba3
senior unsecured debt rating. The rating actions resulted from the termination of the EchoStar merger
agreement and the announcement that Hughes would retain its 81% interest in PanAmSat. The
outlook for the PanAmSat rating is stable.
On December 11, 2002 S&P revised its Credit Watch implications for the corporate credit rating on
PanAmSat to developing from negative, following the termination of the EchoStar merger agreement.
On November 18, 2002 S&P lowered PanAmSat’s corporate credit rating to B+ from BB-. A BB- rating
was assigned to PanAmSat’s senior secured credit facilities and notes, and a B- rating was assigned to
the $800 million of senior notes which are unsecured. S&P stated that the PanAmSat downgrade
reflected Hughes’ majority ownership and not PanAmSat’s stand-alone operating performance or
financial conditions, which was considered stable.
Market Risk Disclosure
The following discussion and the estimated amounts generated from the sensitivity analyses
referred to below include forward-looking statements of market risk which assume for analytical
purposes that certain adverse market conditions may occur. Actual future market conditions may differ
materially from such assumptions because the amounts noted below are the result of analyses used
for the purpose of assessing possible risks and the mitigation thereof. Accordingly, the forward-looking
statements should not be considered projections by Hughes of future events or losses.
General
Hughes’ cash flows and earnings are subject to fluctuations resulting from changes in foreign
currency exchange rates, interest rates and changes in the market value of its equity investments.
Hughes manages its exposure to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of derivative financial instruments.
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