CORRECTED - UPDATE 3-DirecTV Latin America files for U.S. bankruptcy

www.forbes.com By Sinead Carew Reuters, 03.18.03, 9:14 PM ET

In NEW YORK story headlined "UPDATE 3-DirecTV Latin America files for U.S. bankruptcy" please read in third paragraph ... DirecTV's President and Chief Operating Officer Larry Chapman ... instead of ... President and Chief Executive Larry Chapman ... (corrects title, which was also incorrect in UPDATE 2) A corrected version follows.

NEW YORK, March 18 (Reuters) - DirecTV Latin America LLC said on Tuesday it filed for bankruptcy protection, as economic turmoil in Latin America forced the largest pay-television operator in the region to restructure its costs and debts.

DirecTV Latin America, which has been hammered by recessions and strife in Argentina, Venezuela and Brazil that have resulted in fewer subscribers, made the filing under Chapter 11 of U.S. Bankruptcy Code after it failed to renegotiate certain contracts to cut costs.

"We did so after concluding that our out-of-court restructuring negotiations were not going to result in an outcome that would allow us long-term viability," DirecTV's President and Chief Operating Officer Larry Chapman told reporters in a conference call.

One analyst saw the bankruptcy as a necessary move but said a loss of programming could affect subscriber numbers in the short term.

"The bottom line is that DirecTV Latin America's cost structure was unworkable and a restructuring in or out of court was necessary," Lehman Bros. analyst William Kidd said in a research note.

DirecTV Latin America said it would continue regular business throughout the restructuring process, which is expected to take six to 12 months.

The company, which is 75 percent owned by HughesElectronics Corp. (nyse: GMH - news - people), said the filing does not apply to Hughes or to DirecTV Latin America's operations in Latin America and the Caribbean. Latin American conglomerates Cisneros Group and Grupo Clarin are also stakeholders.

FINANCING BY HUGHES Hughes, which is owned by General Motors Corp. (nyse: GM - news - people), has agreed to provide $300 million in financing to allow the company to continue operating, while it navigates its way through bankruptcy proceedings.

The financing, called debtor-in-possession financing, is subject to bankruptcy court approval.

DirecTV Latin America also said Kevin McGrath, 49, has retired as chairman and it named Larry Chapman president and chief operating officer, effective immediately.

DirecTV Latin America said it would ask the bankruptcy court to reject contracts that are "uneconomic and not in (the company's) best long-term interests," including a contract to broadcast the 2006 World Cup and a deal with Walt Disney Co. (nyse: DIS - news - people) to carry the Disney Channel Latin America.

In reference to its talks with DirecTV Latin America, Disney said in a February filing with the Securities and Exchange Commission that an unfavorable outcome could reduce revenue for the Latin American Disney Channel and ESPN Services.

Eric Hollreiser, a spokesman for Disney's ABC Cable Networks Group, told Reuters on Tuesday that the companies had discussed changing their contract.

"Unfortunately, we were unable to reach a mutually beneficial arrangement," he said.

DirecTV Latin America executives also said the company hopes to use the bankruptcy process to address Grupo Clarin's option to sell its 4 percent stake in the company in November for $196 million.

NEGOTIATIONS CONTINUE The company has also been negotiating with its largest lender Hughes, French set-top-box supplier Thomson Consumer Electronics <TMS.PA>, music provider Music Choice and PanAmSat Corp. (nasdaq: SPOT - news - people), which is 81 percent owned by Hughes.

Executives also said the company would enter discussions with other programmers whose contracts are set to expire during the bankruptcy procedure.

In the United States, Disney and Hughes are embroiled in a dispute over Disney's ABC Family Channel, with DirecTV threatening to drop the channel rather pay the 35 percent price increase that Disney is demanding.

DirecTV Latin America executives said the DirecTV discussions were unrelated to its own discussions.

The filing was made in the U.S. Bankruptcy Court in Wilmington, Delaware.

Hughes stock closed down 11 cents at $10.21 on the New York Stock Exchange on Tuesday, while General Motors stock finished up 91 cents at $34.12 and Disney stock closed off 43 cents at $16.58. (Additional reporting by Adam Pasick and Peter Henderson)