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Satellite TV firm YES could be declared insolvent

Market sources doubt Bezeq will let this happen, despite the extra pressure against regulatory approval of the cable merger

Senior executives in satellite TV firm YES have expressed concern behind closed doors about the possibility the company will be declared insolvent. This could happen should the company fail to reach new financing agreements with the banks.

The sources are preparing for the worst case scenario, in which the company's accountants issue a "going concern" warning. To date, YES has obtained some $230 million in bank loans, subject to certain milestones. These mainly relate to average revenue per user, which today comes to $35, and is expected to come to about $40 in 2002.

YES investors, who have so far invested $400 million, will be the first hurt should the company lose its creditworthy rating. The banks would then file for liquidation and sell the company to any investor willing to assume responsibility for the debt.

The credit YES today needs is $200 to $300 million more than the $630 million initially allocated.

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A going concern warning is issued by the auditor of a company who estimates the company lacks sufficient resources to repay its debt, and it has slim chances of obtaining capital to repay debt. What will ultimately determine if YES is declared insolvent are its cash reserves.

Market sources doubt YES will be declared insolvent soon. The sources estimate that state-run phone company Bezeq, which owns 45% of YES, won't allow this to happen.

Bezeq faces a quandary. On the one hand the company may have an interest in YES being declared insolvent, because this will pressure the regulator to withhold approval of the cable companies merger. On the other hand, the "going concern" scenario would blemish Bezeq's reputation, and destroy chances of finding a new investor for YES. Moreover, this would leave the cable companies alone in the multi-channel television market. As a result, prices are expected to rise, while the cable companies ability to compete with Bezeq will not necessarily diminish.

The cable companies debt is not as problematic as YES's debt. The investors in the cable companies could have recruited new investors to decrease the debt, but preferred not to dilute their holdings. It is expected that decreasing their NIS 4 billion debt, partially through the planned merger, will result in far better profit and loss reports for the cable television sector.

YES is very far from reaching positive cash flow, which senior executives expect to happen in 2006 at best. YES CEO Shlomo Liran has already declared that in order to turn to profit the company needs 500,000 subscribers to 600,000 subscribers. The company today has 290,000 subscribers with new subscribers joining at a pace of 20,000 per month.