Net Serviços announced Tuesday, December 3, that ?in order to preserve liquidity and continue to meet operating obligations in a timely manner, considering the lack of available funds in the market to finance its working capital requirements?, it will ?reappraise cash flow while pursuing an adequate capital structure?. Analysts say this amounts to a warning that creditors won?t be paid, at least not for the moment. On December 2 Net failed to pay interest on its second debenture issue. This won?t formally become a default for another few days, but Standard & Poor?s says the amount of past-due debt owed by Net now amounts to 23.5 million Brazilian Reals and has downgraded it to default. Tuesday?s announcement also said ?the company continues to work with Bank of America and has also retained The Blackstone Group as financial advisor… The process in question will not affect operations or the services provided to subscribers. The company understands the need to obtain a satisfactory solution to its capital structure within a short period of time. To this end it will complete and discuss the analysis of its capital structure during the second half of January 2003?.
Devaluation
In mid-year Net reached an agreement with creditors on a solution for its short-term debt, but this deal would have entailed conversion of most obligations from US Dollars to Brazilian Reals (BRL) at the exchange rate in force on the due date. As devaluation gathered speed during the second half, Net realized it would sustain severe losses and aborted the deal. Its third-quarter earnings report stated 300m BRL due in the last quarter that ?would not exist? if negotiations with creditors had been satisfactorily concluded. Two weeks ago CFO Leonardo Pereira said in a conference call that 200m BRL was still left to be repaid or rescheduled. Speaking to PAY-TV News shortly after the call, he said case-by-case rollover talks were under way with creditors but acknowledged the difficulty of obtaining working capital on acceptable terms. It seems Net finds the terms so unacceptable that it would rather suspend payments to creditors altogether, at least for a few weeks. The end-January deadline Net has set itself for submitting a proposal matches the time frame for Globopar to conclude rescheduling negotiations, but that?s presumably a coincidence. Net debt and cash in hand stated by Net Serviços at September 30 were 1.2bn BRL equivalent and 118m BRL respectively.
Suppliers easy
Net?s decision seems to have gone down well in the pay-TV industry, or at least with programmers. Net got no advantages from continuing to pay creditors on time, they argue, and was forced to reschedule payments to suppliers for lack of cash. Now the crisis will be ?socialized?, say these suppliers.
