OREANDA-NEWS. S&P Global Ratings today lowered its issue-level rating on Englewood-Colo.-based satellite services provider Hughes Satellite Systems Corp.'s (HSS) senior secured notes to 'BB+' from 'BBB-'. We also revised our recovery rating to '2' from '1'. The '2' recovery rating indicates our expectation for substantial (70%-90%; upper half of the range) recovery of principal for lenders in the event of a payment default. The lower issue-level rating reflects the additional amount of secured debt in the capital structure following the company's announcement that it has increased its notes issuance to $1.5 million, consisting of $750 million of secured notes and $750 million of unsecured notes. We affirmed our 'BB-' issue-level rating on HSS's senior unsecured notes. The recovery rating remains '5', indicating our expectation for modest (10%-30%; lower half of the range) recovery of principal in the event of a payment default.

The 'BB' corporate credit rating is unchanged and the outlook remains stable. The stable outlook reflects our expectation for low - to mid-single-digit percent revenue growth over the next few years, driven by the company's satellite-broadband segment. We expect net adjusted leverage to be around 2x in 2016, but do not expect the company to materially improve its credit metrics in the near term due to its elevated level of capital spending. For the complete corporate credit rating rationale, see "Hughes Satellite Systems Corp. Upgraded To 'BB' On Expected Improved Operating Performance; Outlook Stable," published March 31, 2016.

RECOVERY ANALYSIS

Key analytical factorsOur default scenario contemplates the company's satellite-based communications services facing weak demand, pricing pressure, and higher operating expense in the currently faster-growing consumer and small business segment. The default would likely be the result of competition from lower-cost terrestrial network options and high operating costs associated with near-term launches. We have valued the company on a going-concern basis using a 5x multiple of our projected emergence EBITDA of $440 million to arrive at a gross enterprise value of $2.2 billion. Our EBITDA at emergence reflects the higher amount fixed charges as a result of the company's notes issuance. Simulated default assumptionsSimulated year of default: 2021EBITDA at emergence: $440 millionEBITDA multiple: 5xSimplified waterfallNet enterprise value (after 5% in administrative costs): $2.09 billionValuation split in % (obligors/nonobligors): 90/10Priority claims: $326 millionCollateral value available to secured creditors: $1.58 billionSenior secured debt: $ 1.79 billion--Recovery expectation: 70%-90% (upper half of the range)Collateral value available to unsecured claims: $209 millionSenior unsecured debt and pari-passu claims: $1.95 billion--Recovery expectation: 10%-30% (lower half of the range)Note: All debt amounts include six months of prepetition interest.