NEW YORK — Hughes Electronics-owned DirecTV Latin America has threatened to file for Chapter 11 bankruptcy as it struggles to renegotiate expensive program and service supply contracts that have hobbled the pan-Latin satcaster.
Move to restructure the 1.6 million-subscriber platform comes as corporate parent General Motors confirmed that it will “provide clarity” on plans to monetize its 30% stake in Hughes by early March. In the wake of the failed merger with EchoStar, management said options for the holding include a sale to a third party (likely Rupert Murdoch’s News Corp. and Liberty Media), a management buyout or an IPO.
In an SEC filing last week, Hughes disclosed that it is proceeding with a major financial restructuring of its Latin American venture and has initiated talks with certain programmers, suppliers and lenders in an effort to reduce fixed costs and reduce a rising debt burden.
Sharing the pain
“There are some significant contracts that need to be realigned with the realities of the marketplace,” DLA chairman Kevin McGrath said, adding that he will encourage programmers and suppliers to share “directly and appropriately the risks of exchange rate fluctuations and currency devaluation.”
The platform has been grappling with financial woes for some time but last week emphasized the urgency of resolving its situation, including the option to restructure the company under Chapter 11 of U.S. Bankruptcy law.
DirecTV Latin America is expected to post a quarterly pre-tax earnings loss of at least $30 million when parent GM announces financial results Wednesday. Hobbled by high churn and a difficult economic climate, DLA and rival Sky Latin America also must contend with currency devaluation, which has increased the relative costs of many program supply deals with U.S.-based content providers.
According to SG Cowan satellite analyst Tom Watts, DLA has been trying to restructure the company for years, but efforts have been stymied by local partnerships. Watts believes the threat of bankruptcy may be a negotiating tool with the intransigent local partners, as well as a way to invalidate economically unattractive contracts with local partners, even though U.S. bankruptcy courts may have limited jurisdiction over Latin American partnerships.
DLA has retained a turnaround specialist, AlixPartners, to help with restructuring and renegotiating key program supply contracts. AlixPartners principal Michael Feder has been named chief restructuring officer of DLA, reporting to McGrath.