Golden Sky Becomes Overcast

Golden Sky Systems, a rural direct TV company, is in another round of talks with its bankers after exceeding cost caps in its amended credit facility.

The company reportedly plans to request an amendment on the covenants, as it expects costs per new customer in acquisitions to continue to be more than $400. The company is unable to borrow under the facility now, sources said, and its banks could terminate the agreements and declare all of the outstanding amount payable.

Company officials could not be reached for comment by press time.

The covenants were amended earlier this year to allow the offering of additional debt by Golden Sky DBS, and the company had to allow for a $2.9 million charge of deferred financing costs.

The increased pressure comes from intense competition in the industry, analysts said, as issuers try to lure away their competitors' customers. EchoStar Communications, for example, offered incentives to PrimeStar customers to convert to EchoStar for direct TV services. And that forced Golden Sky to make similar measure to those same customers.

The Kansas City, Mo-based company garnered quite a bit of attention when it priced a $195 million high yield bond last summer, and investors said at the time that the transaction had an attractive call schedule (HYR 08/03/99). The schedule featured a non-call five, with first call at 112. Prices fall in subsequent years to 110, 108, and par. The coupon was 12.375%, and Merrill Lynch was the lead manager on the deal.