All’s not well with the merger between DISH and DIRECTV. The two companies are working toward a deal that would see them combine into the largest pay-TV company in the United States, but an intransigent group of DISH bondholders is making trouble for the distributors. These investors are being asked to take less for their DISH bonds than promised at their issuing, and they have rejected a new offer from the two satellite firms to try to assuage them.

Key Details:

• A letter from a steering committee representing the group says “roundly” rejected a new offer from DIRECTV and DISH.
• The original offer from DISH and DIRECTV has already been sweetened, to no avail.
• The group says DISH co-founder Charlie Ergen diverted billions of dollars from DISH subsidiary DBS improperly.

The problem that these DISH investors have is that they’re owed around $9.8 billion in bonds from DISH. Under the terms of the proposal by DIRECTV and DISH, they are being asked to swap those holdings for new bonds guaranteed by the newly merged company, should the transaction go through. The issue is that in the process, these bondholders are being asked to take a haircut of around $1.5 billion off their investment.

According to the Wall Street Journal, on Monday the steering committee representing these investors sent them a letter saying that ahead of Tuesday’s deadline, it had “roundly and resolutely rejected the latest proposed exchange offer.”

“Institutional credit providers face a perilous new era as an emboldened billionaire owner of a publicly traded company seeks to leverage his position in an M&A transaction to coerce debtholders into sacrificing value for the benefit of equity holders, even when there is ample value to ensure a fair outcome for all parties involved,” the letter said. “We will not allow that to happen here.”

DIRECTV and DISH have already tried to sweeten the offer by boosting the value of the proposed swap, but to no avail. The investors have an ongoing lawsuit against DISH co-founder Charlie Ergen, alleging that he’d siphoned off billions of dollars from DISH’s subsidiary DBS — which controls DISH’s satellite service and its streamer Sling TV — improperly. DISH and its parent company EchoStar deny any wrongdoing.

The ball now bounces back into DISH and DIRECTV’s court. If the two companies do combine, DIRECTV will take charge of all pay-TV operations, while DISH will continue to try to build a broadband internet business so that the merged business has diverse revenue streams.