Investors Watch Sideco's Correo Argentino

Bondholders are concerned about Argentina-based Sideco Americana S.A.'s ability to service debt after a subsidiary recently filed for bankruptcy. But an official at Sideco, which has interests ranging from toll roads to waste management, says the company doesn't anticipate problems making payments on its debt or in refinancing existing credit lines. He says the company now is in a better position to cope with $260 million of bank debt coming due over the next 12 months and $125 million of bonds due in August, 2002 – which together represent more than half of the company's $628 million in total debt. Investors are focusing on Sideco's postal unit, Correo Argentino S.A., which has been involved in a long-running dispute with the government over payments each side owes the other. In September, Correo filed for the Argentine equivalent of Chapter 11, or 'Concurso Preventivo.' Standard & Poor's, which in September cut Sideco debt ratings two notches to triple-C, contends that the resulting creditor protection will make it tougher for Sideco to refinance debt and 'may constitute an event of default.' Now, some people in the markets believe Sideco's prospects for debt refinancing have grown worse because of steps the government is taking to shore up the financial system. In particular, banks are expected to scale back on credit lines after they exchange government bondholdings for new, lower-yielding securities in coming months as part of a swap deal designed to help the country meet payments on part of $132 billion in public-sector debt. Sideco's debt has been trading at around 30 bid, a level traders call 'distressed,' while the battle over debt payments has continued between Correo and the government."

The article states: "In 1997, the government awarded a 30-year concession to run the post office to a consortium comprised of entities including Sideco, whose 69.23% stake in Correo gives it the largest stake in the group. In return, the consortium agreed, among other things, to make $51.6 million semiannual fixed payments and provide certain postal services to Argentina at capped prices. Two years later, Correo, complaining that the government owed it money for provided postal services, failed to pay $15 million of its semiannual fixed payment to the government. The two sides began negotiations on the payments as well as on labor contracts Correo says are crippling its ability to compete in the deregulated postal market. The government and Correo haven't reached any agreement. Sideco in March, 2000, billed the government for $200 million, saying that the government had caused Correo damages by failing to address matters such as payment and labor contract problems related to the postal system's deregulation. A provincial court ruled in June that the government couldn't legally terminate its 30-year concession to the consortium, even though failure to make payments on demand can be cause for such an action. The court also said the government has to pay Correo $45 million for delivered postal services. Correo is still waiting for that money. To date, Correo has missed payments to the government that total around $220 million. But that became a moot point in September, when the $220 million became part of debt under reorganization as part of the Concurso Preventivo. 'It's going to be a long process,' said Marta Castelli, an analyst at S&P in Buenos Aires. 'There are reasons for complaint on both sides.' In the meantime, the holding company has been spending agressively on expanding into the Brazilian market, and must now shoulder a heavy debt load in what most expect will be a tough period in 2002. Sideco's debt-to-capitalization was 61.5% as of June 2001 and would be 80% if Correo's royalty payments are computed as debt and equity. Banks have grown increasingly reluctant to extend credit to companies. Still, Sideco not only says that it doesn't foresee any problem refinancing existing credit lines, but also argues that Correo's bankruptcy filing should boost the likelihood that the parent has enough money to pay its creditors. 'Before the Concurso Preventivo, Sideco was prepared to transfer money for the sustainability of the post office. After (the Concurso Preventivo), Correo is self-sufficient and that's better for everyone…(the filing is) also for protecting the health of Sideco creditors,' said Mario Morando, a financial officer at Sideco's parent, the holding company Socma." (Source: Dow Jones, Sonja Ryst reporting)