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Investing.com -- EchoStar Corporation (NASDAQ:SATS) shares tumbled, trading down 8% after a Wall Street Journal report indicated the company is contemplating a Chapter 11 bankruptcy filing due to regulatory pressures. The satellite-and-wireless firm, co-founded by Charlie Ergen, experienced a dramatic decline in extended hours trading, initially dropping as much as 39% before paring losses.
The potential bankruptcy comes as EchoStar faces scrutiny from the Federal Communications Commission ( FCC (BME:FCC)), which is reviewing certain wireless and satellite spectrum rights held by the company. FCC Chairman Brendan Carr’s communication with EchoStar last month has raised concerns about the future of the company’s spectrum licenses.
EchoStar’s financial situation has been further strained by its recent decision to skip approximately $500 million in debt interest payments, starting a countdown that could lead to default by July if the grace period provided by the bonds is not met. The company has cited the FCC’s actions as a critical factor that has "effectively frozen our ability to make decisions" regarding the growth and investment in its Boost Mobile business.
In response to inquiries about the possible bankruptcy, an EchoStar spokesperson stated, "We will not comment on rumors or speculation. EchoStar remains focused on delivering ubiquitous connectivity to our customers across the globe and bringing consumers a competitive alternative to incumbent wireless providers."
A bankruptcy filing could potentially shield EchoStar from the FCC’s threats of revocation of spectrum licenses, although the implications of such a move remain uncertain. Telecom (BCBA:TECO2m) analysts suggest that bankruptcy could offer some protection against regulatory actions, but the outcomes of court proceedings are unpredictable.
Investors reacted sharply to the news, reflected in the significant drop in EchoStar’s stock price. The company’s financial challenges and regulatory hurdles present a complex situation for shareholders and the telecommunications industry at large.