TPG Capital’s attempt to consolidate America’s satellite television industry has hit a roadblock as negotiations with Dish Network bondholders threaten to derail what would be one of the year’s largest sponsor-backed restructurings.

The firm wants to combine existing portfolio company DirecTV with rival Dish and has already agreed terms with Dish parent company EchoStar—a nominal $1 in equity value plus assumption of debt.

The deal rests on a debt exchange offering Dish bondholders roughly $8 billion in new paper for existing notes with $9.75 billion in face value. But, as first reported by The Financial Times, a creditor group representing around 80 percent of the outstanding bonds has pushed back.

The ad hoc group, which includes BlackRock, is demanding that DirecTV reduce the proposed $1.6 billion discount to just $300 million. TPG has firmly rejected the ask.

Two-thirds of bondholders by value are required to approve the offer, which is set to expire on October 29. Should it fail, DirecTV has the right to terminate the Dish transaction.

DirecTV counsel Ropes & Gray responded to the demands in a letter sent Sunday to Lazard and Milbank, advisers to the Dish bondholders: “The group’s expectations, as reflected by the proposal, do not represent terms that DirecTV will accept and further DirecTV has no intention of restructuring terms that were negotiated at length between the parties.”

The standoff is made more interesting by DirecTV’s allegations that certain bondholders hold credit default swaps, creating what the company views as conflicts of interest from potential windfall payouts should Dish enter bankruptcy following a failed merger.

The fight threatens an early end for TPG’s larger vision of a satellite television giant that can rival streaming providers like Netflix and Hulu.

Separately, and not contingent on the Dish acquisition, TPG has agreed to acquire AT&T’s remaining 70 percent stake in DirecTV for $7.6 billion, to be paid in multiple installments through 2029. This would consolidate TPG’s ownership of the DirecTV platform, which it first invested in at a $16.2 billion valuation in 2021 — a fraction of AT&T’s original $48.5 billion purchase price.

A combined Dish-DirecTV entity would serve around 18 million paid subscribers, and the added scale would better position the business in negotiations with content providers—often a zero-sum fight against streaming services.

The thesis also assumes at least $1 billion in annual cost synergies by year three, despite limited operational overlap between the two satellite fleets. Per Moffett Nathanson, clear network synergies are “likely to be much more limited than you might imagine.” The upshot is that most of the cost savings is likely to come from cuts to duplicative corporate overhead.

But that scale can’t paper over the industry’s more fundamental challenges. Deterioration of the traditional pay-TV market has driven a nearly decade-long stretch of subscriber losses for both DirecTV and Dish Network. Their combined customer base is now down 63 percent from its 2016 peak.

Even so, cash generation is a bright spot. TPG has already recouped its initial 2021 DirecTV investment through dividend payouts and plans to use post-deal cash flow to fund a pivot to streaming.

Even if the legacy satellite providers can’t find a second wind in streaming, a long tail of subscription revenue might hand TPG a positive outcome all on its own.

EchoStar’s positioning is less enviable.

The company faces a $2 billion debt maturity in November but has just $500 million in cash on the balance sheet. To avert immediate liquidity issues, TPG Angelo Gordon has said it will proceed with a $2.5 billion loan to Dish regardless of the merger’s status.

But, if the larger deal falls through, EchoStar will still be on the hook for nearly $7 billion in additional maturities over the next two years.

Should TPG find a way through the bondholder impasse, the next hurdle is antitrust. The regulatory pathway may be clearer than past attempts—including a blocked merger in 2002—but the current antitrust climate can be unforgiving.

As evidenced by the FTC’s blockage of near-bankrupt Spirit Airlines’ sale to JetBlue, financial distress isn’t always enough to secure approval.