OREANDA-NEWS. S&P Global Ratings today said it lowered its corporate credit rating on Englewood, Colo.-based DISH Network Corp. to 'B+' from 'BB-'. The outlook is stable.

We also lowered the issue-level rating on unsecured debt issued at operating subsidiary DISH DBS Corp. to 'B+' from 'BB-'. The recovery rating remains '4', indicating expectations for average recovery (30%-50%; upper end of the range) in a payment default.

At the same time, we assigned our 'B-' issue level rating and '6' recovery rating to the proposed unsecured convertible notes issued at the parent company DISH Network Corp. The '6' recovery rating indicates expectations for negligible recovery (0%-10%) in the event of a payment default.

"The downgrade reflects deterioration in our forecasted credit metrics following the company's proposed issuance of $2 billion in convertible debt," said S&P Global Ratings credit analyst Chris Mooney.

While the receipt of cash will enhance the company's near-term liquidity position, we believe the company could use the proceeds for future spectrum purchases (although the timing and amount remain uncertain). As a result, we expect leverage to rise to 5.2x-5.4x by 2017 and remain elevated due to earnings pressure from a declining pay-TV subscriber base. In the second quarter of 2016, DISH lost 281,000 subscribers, down about 2.5% compared with the same period a year ago. We expect low - to mid-single-digit percent subscriber losses in each of the next several years due to intense competition from DIRECTV, cable, and video programming delivered over-the-top (OTT) via the Internet, which will more than offset growth in DISH's own OTT offering, SlingTV. The company's lack of a high-margin broadband offering leaves DISH more exposed to rising programming expenses and the longer-term threat of over-the-top (OTT) video alternatives, in our opinion.

The outlook is stable reflecting our view that consolidated adjusted leverage will remain between 5x-6x for the foreseeable future. We expect earnings to decline modestly over time due to mature and competitive pay-TV market conditions so any improvement in credit metrics would be the result of debt reduction, which we view as unlikely unless leverage at DBS Corp. were to rise significantly above its current level. Our leverage thresholds reflect our current view of the company's business risk profile, which is based primarily on its core pay-TV business. As a result, we will look to reassess our business risk profile and the appropriateness of these thresholds as longer-term developments around the company's wireless strategy unfold.