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/raid1/www/Hosts/bankrupt/TCRLA_Public/010620.mbx T R O U B L E D C O M P A N Y R E P O R T E R L A T I N A M E R I C A Wednesday, June 20, 2001, Vol. 2, Issue 120 Headlines A R G E N T I N A AEROLINEAS ARGENTINAS: Current Condition Could Be "Irreversible" AEROLINEAS AEROLINEAS: To Keep Flying, Argentine President Says B R A Z I L 360NETWORKS: Impsat Terminates Certain Latin American Contracts C H I L E PSINET: Closes Deal With Cori Capital Partners STARMEDIA NETWORK: Company Profile TELEFONICA CTC: Competitors Lobby Against Regulatory Changes G U A T E M A L A METROPOLITANA: Banking Regulator Seeks Liquidation M E X I C O POLAROID CORP.: Fitch Drops Sr. Notes `CCC-'; Rating Watch Neg P A N A M A PYCSA PANAMA: Default Prompts S&P to Lower Rating to 'D' V E N E Z U E L A STARMEDIA: Predicts 30% Increase In Advertising XEROX: To Reopen Venezuela Plant July This Year - - - - - - - - - - ================= A R G E N T I N A ================= AEROLINEAS ARGENTINAS: Current Condition Could Be "Irreversible" ---------------------------------------------------------------- The present condition at Aerolineas Argentinas "could become irreversible" if the "necessary measures" to resolve the crisis are not adopted. Pedro Ferreras, chairman of Spanish state holding company Sociedad Estatal de Participaciones Industriales (SEPI), issued these somber words in a report Monday in AFX European Focus. Ferreras reiterated SEPI's intention of doing "everything necessary to save the company," but noted that this will not involve any financing "unless measures are taken to ensure Aerolineas' viability." The Spanish government is apparently keen on the idea of selling the troubled airline. Argentinean Infrastructure Minister Carlos Bastos stated on 15 June, "Spain has no intention of liquidating or bankrupting the company. They do not want to continue operating it and consider... (a rescue plan) as the best way to put the firm in order before its sale." Aerolineas Argentinas is 92-percent owned by SEPI. The holding company has indicated that it is considering suspending debt payments at the carrier as early as next week in order to prevent bankruptcy. AEROLINEAS AEROLINEAS: To Keep Flying, Argentine President Says --------------------------------------------------------------- Argentine president Fernando De la Rua stated that struggling flagship carrier Aerolineas will continue operating, even if its ownership changes, according to a report in Associated Press on Saturday. "I've said clearly that the Argentine government is in no conditions to take charge of the company. But I'm sure that Aerolineas will keep flying," De la Rua said. "Maybe it continues with the SEPI or that, once reorganized, that it sells the company," De la Rua added. Workers and the Argentine government are increasingly worried that the 50-year-old airline is buckling under its massive debt and may be shut down. It is already stuck in a 3-year-old recession and battling with 15 percent unemployment. "We look into this problem with great interest, because 7,000 jobs and the aerocommercial traffic in Argentina are at stake," De la Rua related. =========== B R A Z I L =========== 360NETWORKS: Impsat Terminates Certain Latin American Contracts --------------------------------------------------------------- Impsat Fiber Networks, Inc. ("IMPSAT" or the "Company") (NASDAQ:IMPT), a leading provider of broadband telecommunications and data center services in Latin America, today announced that it has terminated certain contracts signed with subsidiaries of 360networks (NASDAQ: TSIX), for the provision of indefeasible rights of use (IRUs) over dark and lit fiber capacity, as well as maintenance services, in Argentina and Brazil. ========= C H I L E ========= PSINET: Closes Deal With Cori Capital Partners ---------------------------------------------- Newly created private equity firm Cori Capital Partners LP (CCP) has just signed a letter of intent to close on its first deal with PSINet Inc., according to a BuyOuts report Monday. The deal, a data transmission play, will see Cori acquiring the remaining Latin American operations of PSINet in Brazil, Argentina, Mexico and Uruguay. PSINet is a global provider of Internet-based communications services for business. Cori Capital Partners LP is a private equity vehicle sponsored by Violy, Byorum & Partners Holdings LLC (VB&P); CDP Capital International, a subsidiary of Caisse de depot et placement du Quebec, a major investor in Latin America; and Fenway Partners. The investment group began marketing the fund earlier in the year and has retained VB&P as its exclusive financial adviser. Just recently, PSINet announced it has signed a definitive share purchase agreement with an investment group led by iLatin Holdings and consisting of additional investors, including Chilean businessman, Jose Cox. Under the terms of the agreement the investment group has agreed to purchase PSINet's Chilean operations and facilities. The proposed purchase is subject to a number of conditions, including approval under the U.S. bankruptcy proceedings. STARMEDIA NETWORK: Company Profile ---------------------------------- Name: StarMedia Network, Inc. 29 W. 36th St. 5th FL. New York, NY 10018 Telephone: 212-548-9600 Website: http://www.starmedia.com Type of Business: StarMedia Network Inc., is an Internet media company targeting Spanish and Portugese- speaking markets worldwide. The company's network consists of 14 branded Internet properties, which include StarMedia, a portal for Spanish and Portugese speakers; Latinred, a Spanish language online community; Cade?, an online directory in Brazil; Zeek!, an online directory of Portugese language sites; Adnet, a Mexican web directory; Open Chile, a comprehensive Chilean directory and guide; Batepapo,a Brazilian chat portal; Guia SP, Guia Rj and Guia Nacidade, Brazilian metropolitan web directories; Panoramas, a Chilean guide for Santiago; Paisas.com and Yori Vito, online Columbian city guides and Persicopio, an information portal for Spanish speakers worldwide. The company also operates StarMedia Mobile its wireless division. SIC: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] Employees: 779(last reported count) Total Assets: $190,605,000 (as of March 31, 2001) Total Current Liabilities: $50,465,000 (as of March 31, 2001) Total Revenues: $16.0 million (as of Mar. 31, 2001) Net Loss: $31.2 million (as of Mar. 31, 2001) Trigger Event: In 2000, StarMedia was besieged by a throng of competitors and has struggled to reach profitability since then. The challenges are apparently too much for the small company to handle and it would only be a mater of time before StarMedia will be acquired by Spain's Terra Networks, T1MSN - a joint venture between Mexico's Telmar and Microsoft or another regional portal. Chairman & CEO: Fernando J. Espuelas CFO: Steven J. Heller Last TCRLA Headline DATE: Friday, June 15, 2001, Vol2, Issue 117 TELEFONICA CTC: Competitors Lobby Against Regulatory Changes ------------------------------------------------------------ Five competitors of Chile's incumbent telco Telefonica CTC Chile published advertisements in local media this weekend expressing their concern over possible modifications to the regulatory environment, Business News Americas reported Monday. "The country cannot be expected to abandon the framework that has regulated the sector successfully with the objective of reversing the losses of one single company. Even less when it is the dominant company," according to AT&T, Entel, Telsur, Coyhaique and VTR. The action was launched in response to comments made last week by telecoms minister Carlos Cruz that the government would consider modifying a 1999 decree that cuts the rates CTC charges consumers and competitors if ordered to do so by the country's competition regulator. CTC, which owns about 82 percent of the country's 3.3 million fixed lines, claims that the decree resulted in a 24.7-percent decrease in revenues per line. The company filed a complaint with the Antitrust Commission earlier this year to have the decree overturned on the grounds that it is no longer a dominant operator due to the proliferation of mobile telephony. ================= G U A T E M A L A ================= METROPOLITANA: Banking Regulator Seeks Liquidation -------------------------------------------------- Deputy banking regulator Ergas Barquin disclosed that Guatemala's banking regulator will petition the local court for liquidation of intervened finance company Metropolitana, Business News Americas reported Monday. Barquin expects to obtain approval from the court and said that the process should take two or three years. Metropolitana was fell short by US$50 million in capital since most of the related loans are not likely to be recovered. In addition, the company was also saddled with US$63 million in debts that it could not pay. Metropolitana was intervened on June 7 due to liquidity problems and an "extremely high" level of loans to companies that belong to Fransisco Jose Alvarado, the finance company's owner. Alvarado, who is also the majority shareholder in intervened banks Metropolitano and Promotor, which are awaiting liquidation, was charged with fraud and mismanagement by the banking regulator. =========== M E X I C O =========== POLAROID CORP.: Fitch Drops Sr. Notes `CCC-'; Rating Watch Neg -------------------------------------------------------------- Polaroid Corp.'s senior unsecured debt is downgraded to `CCC-' from `B-' and its $350 million secured domestic bank facility is lowered to `CCC+' from `B+'. Both ratings remain on Rating Watch Negative. These actions reflect sustained losses in the second quarter due to declining revenue from Polaroid's core instant film product lines. In addition, a liquidity crisis is of significant concern in light of $544 million of debt due within seven months. Net operating losses before special charges in the second quarter are anticipated to mirror losses in of the first quarter as consumers continue to migrate to digital imaging. Fitch expects credit fundamentals to further deteriorate, with credit protection measures for the senior unsecured bondholders remaining particularly weak. On March 23, 2001, Polaroid's total debt outstanding approximated $970 million, with $544 million due within one year ($394 million in bank agreements due December 2001 and $150 million in senior notes due in January 2002). Polaroid received waivers on its leverage and interest coverage ratio covenants contained in its domestic and UK credit agreements through May 15, 2001, which were extended through July 12, 2001. The waiver on the domestic facility grants the lenders a security interest in substantially all of the company's personal property, reducing asset coverage for the unsecured bondholders. Polaroid has taken several steps to free cash flow for debt reduction including the completion of two divestitures in the second quarter of 2001 totaling about $106 million in gross proceeds, as well as discontinuing its annual $27 million dividend, reducing capital expenditures and working capital, and restructuring operations. Nonetheless, Fitch remains concerned about Polaroid's ability to repay its senior notes due in January 2002. In addition, Fitch recognizes that Polaroid must secure additional waivers by July 12. Fitch will continue to monitor the company's refinancing plans and assess the credit impact of any changes. The Rating Watch Negative status is expected to be resolved following the resolution of the company's financing plans, the impact of any new terms on the unsecured bondholders, and the ability of the company to repay its maturing debt. Also considered will be the potential for continued earnings deterioration and the company's ability to implement further asset sales. =========== P A N A M A =========== PYCSA PANAMA: Default Prompts S&P to Lower Rating to 'D' -------------------------------------------------------- On June 18, Standard & Poor's lowered its foreign currency rating on PYCSA Panama S.A.'s $126.5 million senior secured bonds due 2012 to 'D' from double-'C' because PYCSA Panama did not make its June 15, 2001 bond payment of about $7.8 million, which includes principal and interest. The bonds were on CreditWatch with negative implications. The company owns and operates a toll road in Panama City, Panama. Traffic growth has been insufficient to meet the financial obligations of the project, and the debt service reserve fund has been fully exhausted. Although PYCSA Panama has a 10-day cure period to make the June 15 bond payment, Standard & Poor's does not expect Grupo PYCSA, the project sponsor, to make a capital infusion to make the payment because Grupo PYCSA has been negotiating with bondholders to restructure the debt. Any restructuring that leads to a deferral or reduction in interest and/or principal payments would cause a default under Standard & Poor's criteria, which requires companies to adhere to the original amortization schedule. The following factors led to lower traffic volumes than originally projected and the subsequent default on the bonds: -- Access to the road was impeded by the Ministry of Public Works (MOP) institution of directional lane changes on competing free roads during rush hours, and reliance on manual traffic control, which slows access to the toll road from central Panama City. However, the MOP eliminated the lane reversals on Sept. 1, 2000, which increased traffic flow to the Northern Corridor. Yet the project is not significantly benefiting from this change because drivers are using the newly constructed Southern Corridor to bypass the competing free road. Management would like to expand the project to provide motorists with a better alternative to either the free road or the Southern Corridor. If undertaken, the expansion would cost $94 million. -- Drivers are more reluctant to pay the toll than originally forecast. The toll rate is high when compared to U.S. urban road toll rates. Additionally, truck traffic is still well below forecast because of delays in the installation of the transponder system. The original transponder contractor abandoned the project and management expects to install a new system by year-end 2001. PYCSA Panama, wholly owned by Grupo PYCSA, issued the bonds to finance a portion of the cost to construct the 8.1-mile Northern Corridor and 10.1-mile Madden segment tolls roads in and near Panama City. PYCSA Panama operates under a 30-year concession. Constructora Vial, wholly owned by Grupo PYCSA, completed the Northern Corridor in early 1998, but did not complete the Via Madden until May 1999, 11 months behind the originally scheduled completion date of July 1, 1998, due to delays in obtaining permits, the receipt of new heavy equipment, and rainy weather. Autovias, wholly owned by Grupo PYCSA, operates the roads under a long-term agreement, Standard & Poor's said. ================= V E N E Z U E L A ================= STARMEDIA: Predicts 30% Increase In Advertising ---------------------------------------------- Regional Internet company Starmedia predicts a 30-increase in advertising sales this year, according to CEO Fernando Espuelas in a Business News Americas report released Monday. Espuelas said that the company would continue to reduce costs and would remain firm with its target to break-even by year-end. Starmedia's Venezuelan subsidiary has been the least affected by a recent 25 percent personnel cut. The payroll trimming was aimed at shortening the road to profitability, assuming the company continues its good performance in advertising and ability to attract new clients. Meanwhile, Starmedia, through its Inter-American Development Bank-backed foundation, is preparing to launch an Infocentros program in Venezuela, which aims to train the Latin American public on using the Internet. Fundacion Starmedia already maintains a presence in Brazil, Colombia and Uruguay. Before initiating in Venezuela, it must first reach an agreement with a local company over logistics. XEROX: To Reopen Venezuela Plant July This Year ----------------------------------------------- Xerox managed to sell off certain assets in China and Europe and cut costs to boost cash-flow to US$4 billion. But the drastic measure didn't yield a profit in the first quarter of 2001, South American Business Information reported Monday. The company has redirected itself away from the positioning tag of the "Document Company" to a more digital operation. In Venezuela, Xerox has just completed a US$3 million-plus workflow applications contract with Pdvsa. The company has also acquired Tectronix and raised its market share with a promotion that gives a free black cartridge for every colored cartridge purchased. After spending US$10 million in investments, the Venezuelan operation is expected to reopen the Los Teques plant in July 2001 and open a warehouse in Boleita. S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter Latin American is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Trenton, NJ, and Beard Group, Inc., Washington, DC. John D. Resnick, Edem Psamathe P. Alfeche and Janice Mendoza, Editors. Copyright 2001. All rights reserved. ISSN 1529-2746. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Latin America subscription rate is $575 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 301/951-6400. * * * End of Transmission * * *