No light at the end of the tunnel, UBS Warburg wrote about Matav Cable Systems (Nasdaq:MATV) this week. Analyst Stephen Levey said that Matav's third-quarter results had disappointed, mainly the company's Ebitda ¿ earnings before interest, taxes, depreciation and amortization, which he said came to a mere $1.3 million.

Levey doesn't see light at the end of the tunnel because getting a fast-Internet license ¿ which the cable TV companies have been touting as the harbinger of true revolution ¿ will just increase their losses in the short run. Meanwhile, tiering will only start boosting income in 2003, he wrote.

Matav's income has also been eroded by closing down its fast-Internet company Nonstop, and thanks to special deals for subscribers. Meanwhile content costs have soared, he noted, boosting operating costs beyond expectations.

The key, he concludes, is financing. The company already owes NIS 800 million net, which should climb to NIS 950 million by the end of 2002, assuming the banks agree to lend more.

Lend more? Why, after all UBS's dire predictions, would the banks do that? Levey can explain: Because they have no choice. They will charge higher interest, he adds.

In other words, UBS assumes that as Israel's banks are already stuck with loans totaling NIS 800 million to Matav, they won't cut the company off now.

Ha'aretz as another case in point
UBS focused on Matav because it's a publicly traded company. But Israel's media scene is littered with companies in exactly the same situation.

The Ha'aretz publishing group is one example. This week TheMarker reported that the Yedioth Ahronoth business group decided to reschedule a $10 million loan it had made to Ha'aretz over five years. The loan was to have been repaid in a year.

Why would Yedioth's Arnon Mozes and Eliezer Fishman do any such thing? Why didn't they demand the money back from Ha'aretz's Amos Schocken as originally scheduled?

Good question. Neither Yedioth nor Ha'aretz is saying. Given the high degree of centralization in Israel's media, it would seem that the Antitrust Commissioner, Dror Strum, should venture an opinion.

Usually the motivation is clear. Bank Hapoalim had good reason to extend loans taken by Koor Industries (NYSE:KOR) by five years. The deal could protect the bank's 20% interest n the conglomerate. The banks are lending more and more to Matav rival Tevel, mainly because they already lent it NIS 3 billion ¿ and without a little more, Tevel's situation would be even sorrier than it already is.

The tendency in the whole media sector to refinance, reschedule, and roll over loans sheds a whole new light on their ability to repay.

It turns out that many of the loans made in years past were based on assessments that the loans could be rolled over again and again, via the capital market or banks.

Some of the companies can't only meet principal payments ¿ they are defaulting on interest payments. The banks have no choice but to change the terms of the loans, lest they made the borrower's situation even worse.

But a bank director we spoke with yesterday, a famous man in Israel's business community, was sanguine. There's nothing new under the sun, he shrugged. Rooting through his library, he found a letter of resignation from a director, dated many years ago.

The following is a verbatim translation of the missive.

Re: Resignation from the board of your institution

With the song of a mandolin in my heart, I would like to take this unique and unforgettable opportunity to resign from the board of your institution (before you change your minds).

It was an unforgettable experience that will remain engraved on my heart for years to come.

I would like to thank you for the opportunity you gave me to fulfill an old dream, to be a banker when I grow up, albeit only once a month.

But I take this opportunity¿ to again raise three suggestions, which I first raised some time back, that I think would change the bank's future¿:

1. The mere fact of requesting credit disqualifies the petitioner from getting credit.

2. To save time spent on studying the issue at stake, a receiver-liquidator should be appointed to the borrower when granting credit. It will save time and money.

3. All credit allocations should immediately be booked in the list of doubtful debt provisions. Debates should be held in the (few) cases that justify reclassification of the doubtful debt as active. That will save time and debate, compared with the prolonged procedure of discussing the reclassification of active debt as doubtful.

Sincerely yours.