Frankfurt, Germany -- When Kirch Group vice chairman Dieter
Hahn returned to Munich from New York two weeks ago, he altered the company's financing
plan for its digital pay TV relaunch this month by nixing a bond offering for 2 billion
deutsche marks ($1.08 billion).
The bond issue was postponed until next spring. Meanwhile,
international investment bank Morgan Stanley Dean Witter & Co., which was to manage
the sale, is providing Kirch with a DM1.5 billion ($810 million) bridge loan.
In recent weeks, the high-yield bond market has become
increasingly unattractive, particularly with the U.S. Federal Reserve Board expected to
raise interest rates. The higher rates would push up interest rates on Kirch's debt and
make the financing too expensive for the company.
But this may only be half of the story. Due to the slow
pace of pay TV's development in Germany, analysts apparently found it difficult to judge
the sector's future potential. Moody's Investors Service gave the bond a
below-investment-grade or "junk" rating of B3, ranking it as a high-risk
The bond was mainly designed to fund the relaunch of
Kirch's digital direct-to-home platform Premiere World. Currently, it has more than 2
million subscribers, with more than 900,000 of them receiving digital transmissions. By
the end of 2000 Kirch expects Premiere World to have about 2.9 million subscribers.
If the Christmas sales season goes well, Kirch may be able
to secure more attractive rates for a springtime bond issue.