DirecTV Latin America (DLA) is to undergo a financial restructuring that could have serious consequences for fixed satellite service (FSS) operator PanAmSat. DirecTV is coming to grips with mounting losses as well as a tough economic environment.

Marc Nabi, a satellite equity analyst at Merrill Lynch, said in a research note: “The news is obviously troubling [for PanAmSat] given backlog uncertainties and new concerns of a deteriorating current revenue base. PanAmSat’s August 10-Q filing states that the largest at-risk customer, which we now assume is DLA, would represent $84 million or about 10 per cent of our forecast 2002 revenues.”

William Kidd, a satellite equity analyst at Lehman Brothers, commented in a research note: “DirecTV Latin America exposure is significant. DLA reportedly accounts for $57 million in annual revenue and $589 million in backlog. DLA was included in PanAmSat’s estimate that approximately $1 billion in backlog was at risk of non-performance. We believe that DLS ranks second in revenues and first in backlog for PanAmSat.”

DirecTV Latin America has begun discussions with certain programmers, suppliers, lenders and business associates in an effort to improve financial performance. Michael Feder, a principal at AlixPartners, a turnaround and management services firm, has been named chief restructuring officer of DLA.

The company has a high debt burden and Chapter 11 bankruptcy looks like a serious possibility. Kevin McGrath, chairman of DirecTV Latin America, said: “If our discussions do not result in a reasonable agreement in the near future, we would consider other options available to the company, including restructuring the company under Chapter 11 of the U.S. bankruptcy law.”

One possible option for the beleaguered satellite TV provider is a merger with rival Sky Latin America, owned by News Corp. A merger between the two platforms is seen as a natural solution for the two providers. PanAmSat also provides transponders to Sky Latin America.

–Mark Holmes