Creditors preventing growth and expansion

Buenos Aires- Cablers Cablevision and Multicanal forked out millions in borrowed money last decade to build large networks.

Now the $1.25 billion is in default, and they’re facing hurdles to get creditors to accept less money so they can rebuild their businesses.

Most creditors frowned on Cablevision’s first offer to repay $725 million of debt, forcing the leading cabler, with 1.2 million subs, to sweeten the deal.

As of mid-February, creditors holding 38% of its debt had accepted the deal, less than the two-thirds needed to submit it for legal approval in an out-of-court settlement. Once approved, Cablevision, in which Hicks, Muse, Tate & Furst and Liberty Media are invested, can impose the terms of its offer on all creditors.

To get the two-thirds, it is offering to pay more to exchange outstanding debt for cash and lower interest bonds, according to a stock exchange filing. The offer expires March 2.

The industry’s money problems are a result of Argentina’s 2001-02 financial crisis. A 65% weakening of the peso against the U.S. dollar, depressed wages, high unemployment and 50% inflation spurred sub cancellations and made foreign debts unmanageable as the amount tripled in peso terms while revenue remained in the weak peso.

Cablers raised sub prices but this accelerated cancellations. The number of subs has plummeted to 3.5 million from 1998’s high of five million.

Even though economic recovery slowed cancellations to 3% a year in late 2003, boosting optimism about growth prospects, the cablers’ debts still stand in the way, says Paola Briano, an associate director of credit rating agency Fitch Argentina.

Until the debt deals are accepted by banks and bondholders, Cablevision and Multicanal will continue to lack the cash and credit to expand and market their services, as well as to add extra services like digital technology, a key to boosting revenue per user.

“They can’t invest aggressively because creditors would oppose that,” says Briano. “They want their money back first.”

She expects it will take two to three years of hard work for Cablevision and Multicanal to recover the subs lost during the crisis.

Multicanal, meanwhile, faces a hostile U.S. vulture fund and another creditor seeking full repayment of the $160 million in bonds they hold, some picked up on the cheap in recent months.

The cabler, owned by local media conglom Grupo Clarin, has fended off a first attack, which could have derailed its debt restructuring.

This month the U.S. Bankruptcy Court for the Southern District of New York ruled that Multicanal can “take all actions” under Argentine law to advance the restructuring.

Multicanal, with 827,000 subs, has already gained two-thirds acceptance from creditors for its offer to swap debt for bonds with longer lives and lower interest rates, and to exchange some debt at 30% of its original value for cash.

Now, the U.S. judge’s ruling has prevented three creditors holding 30% of Multicanal’s debt from proceeding with its petition for Chapter 11 bankruptcy in the U.S.

The ruling obligated the creditors, some affiliated with U.S. vulture fund W.R. Huff, to seek full repayment of the debt in Buenos Aires ahead of a judicial ruling there on the debt proceedings.

But days before the judge’s decision was set to be made on Feb 13, W.R. Huff and a few small, local creditors presented a fresh challenge against Multicanal’s repayment plan in the Buenos Aires court.

It is still uncertain how this will affect the debt restructure. Multicanal declined to comment, saying it was preparing a statement.

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