S&P rates Hughes Network notes B-, loan BB-

Standard & Poor's said it assigned its B corporate credit rating to Hughes Network Systems LLC. At the same time, a B- rating was assigned to the company's new $325 million senior unsecured notes due 2013, and a BB- bank loan rating and recovery rating of 1 was assigned to the company's new $50 million six-year senior secured revolving credit facility, which will be undrawn at transaction closing.

The outlook is stable.

Senior note proceeds plus $50 million cash equity from SkyTerra Communications Inc. will be used to finance SkyTerra's $255.9 million cash purchase of 50% of Hughes Network Systems from its current 100% owner, The DirecTV Group Inc. DirecTV will retain a 50% stake in Hughes Network Systems. Remaining proceeds will provide $99 million in balance sheet cash and pay transaction expenses.

S&P said the ratings reflect competitive industry conditions; mature revenue prospects for core enterprise services; uncertain growth potential for small business and consumer applications; a leveraged financial profile; low profitability compared with other telecommunications companies; a lack of near-term discretionary cash flow generation due to capital expenditures needed to complete the Spaceway broadband satellite project, as well as associated operating risk; and potential satellite failure risk.

Tempering factors include the company's leading position in the very small aperture terminal (VSAT) industry; a degree of revenue stability from three- to five-year contracts with large enterprise customers; VSAT technology's ability to provide economical, quickly deployable, ubiquitous, point-to-multipoint connectivity, which partly buffers competitive pressure from terrestrial networks; and good customer and geographic diversity, S&P noted.

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