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Rating Action:

Moody's assigns Baa1 rating to Globo's USD 325 million proposed notes; outlook stable

01 Jun 2015

New York, June 01, 2015 -- Moody's Investors Service assigned a Baa1 rating to the proposed USD 325 million senior unsecured notes due 2025 to be issued by Globo Comunicação e Participações S.A.'s ("Globo"). Proceeds will be used to replace Globo's existing USD 325 million 6.25% perpetual notes. The ratings outlook is stable.

As part of the refinancing of Globo's existing USD 325 million 6.25% perpetual notes, Globo will transfer to Pontis III Ltd. (not rated), a Cayman Islands-based special purpose vehicle, the option to purchase all of the outstanding Globo's USD 325 million perpetual notes on July 20, 2015. At the same time, Pontis III Ltd. will issue senior secured exchangeable notes ("SENs") to be mandatorily exchanged for the new Globo's USD 325 million senior unsecured notes due 2025. The gross proceeds of the SENs will be deposited in an escrow account pledged to the SENs trustee on behalf of the holders and will be released on the call exercise date.

The issuance is part of Globo's liability management with the objective of reducing the cost of its debt, and will not affect its leverage metrics since the proposed issuance will replace the existing USD 325 million perpetual notes in its entirety.

The rating of the proposed notes assumes that the issuance will be successfully completed as planned and replace Globo's existing USD 325 million perpetual notes, and that the final transaction documents will not be materially different from draft legal documentation reviewed by Moody's to date and assume that these agreements are legally valid, binding and enforceable.

Rating assigned:

Issuer: Globo Comunicação e Participações S.A.

USD 325 million Senior unsecured notes due 2025: Baa1

The company's existing ratings are unchanged:

Issuer: Globo Comunicação e Participações S.A.

LT Issuer Rating: Baa1

USD 200 million 5.307% senior unsecured notes due 2022: Baa1

USD 300 million 4.875% senior unsecured notes due 2022: Baa1

USD 325 million 6.25% senior unsecured perpetual notes: Baa1

The outlook for all ratings is Stable

RATINGS RATIONALE

Globo's Baa1 ratings are supported by its leading market position in the Brazilian TV broadcasting market with 37% of the overall average national audience share and 42% during prime time, in the last twelve months ended in March 2015. The rating also recognizes Globo's demonstrated progress in diversifying away from advertising revenues into the higher margin content and programming segment that reached 34% of revenues in March 2015. Moreover, while the Brazilian media advertising expenditures reached BRL 33.5 billion in 2014, 4.1% above 2013, advertising expenditures for broadcast TV increased 8.1% over the same period, to BRL 23.2 billion, accounting for 69.1% of the total media advertising market. Globo's high quality content with 92% of its prime time programming produced in-house is an additional credit positive.

Globo's Baa1 rating ranks one-notch above Brazil's government bond rating of Baa2, which is granted only on exceptional basis for issuers with fundamentals that are much stronger than the sovereign. In the case of Globo this is evidenced by its exceptionally strong credit metrics, ample liquidity and a foreign-exchange exposure that is managed through hedges and mitigated by revenues generated outside of Brazil that are sufficient to service its near-term debt servicing obligations. These factors outweigh Globo's close links with the Brazilian economy.

The main factors constraining Globo's ratings are Brazil's government bond rating at Baa2, the company's concentration of revenues in the cyclical Brazilian TV advertising market, with a degree of foreign exchange exposure, as well as the company's high fixed cost base, stemming from its high quality programming strategy, and competition that pressures its margins. The company's improved, but still evolving corporate governance and lack of independent board members are also factors constraining Globo's rating.

The issuance is part of Globo's liability management with the objective of reducing the cost of its debt, and will not affect its leverage metrics since the proposed issuance will replace the existing USD 325 million perpetual notes in its entirety.

Globo has a solid liquidity position supported by its total cash of BRL 7.4 billion in the end of March 2015, a small increase from BRL 7.2 billion in December 2014, but still less than BRL 8.6 billion of cash reported in December 2013, mainly due to BRL 2.8 billion in dividend payments in the LTM ended March 2015. Despite the decrease, Globo's cash position still more than covers its total adjusted debt of BRL 2.9 billion.

The company has a very comfortable debt maturity profile with no major maturities until 2022, when USD 500 million comes due, and its remaining USD 325 million of debt are related to the proposed notes due 2025 that will replace the existing perpetual notes.

Most of Globo's indebtedness is denominated in foreign currencies, mainly USD, exposing the company to foreign currency fluctuations. Accordingly, the company hedges at least its next 12-month foreign currency exposure and its main debt maturities are due in 2022 and onwards, which mitigates cash impacts. In a stress scenario considering an exchange rate of BRL/USD of 4.0, the highest achieved since the creation of the Brazilian Real and representing a devaluation of almost 25% from the March 2015 value, the company's leverage would increase to around 0.7x. This ratio would still be commensurate with Globo's Baa1 rating.

The stable outlook on Globo's Baa1 rating reflects our view that Globo's credit metrics will remain strong for the rating category and that management is comfortable with the current low leverage and high cash balance. We also believe that Globo will benefit from increased advertising spend associated with the 2016 Olympic Games that will be held in Brazil.

An upgrade on Globo's rating would depend on an upgrade of Brazil's government bond rating and on the maintenance of strong credit metrics, liquidity and market positioning. A gap of more than one notch with the current Baa2 rating is unlikely.

Conversely, negative pressure could arise should Brazil's sovereign rating be downgraded or the Brazilian economy and TV advertising market experience a greater than expected downturn that causes Globo's leverage to increase to above 1.0 time or EBITDA margin to fall below 15%, or FCF turn negative for an extended period of time due to excessive cash dividends payout. We also expect Globo to maintain cash well in excess of debt. A material debt-financed acquisition could also cause a negative movement in Globo's current rating or outlook.

The principal methodology used in this rating was the Global Broadcast and Advertising Related Industries published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Rio de Janeiro and owned by the Marinho Family, Globo is Brazil's largest media group and leading broadcast TV network with BRL 16.2 billion (equivalent to USD 6.9 billion) in net revenues in 2014. Globo has other business activities including pay-TV production and programming, sound-recording, magazine publishing, internet businesses engaged through its subsidiaries, as well as interests in Brazil's leading satellite direct-to-home, Sky Brasil (unrated) and cable TV operator, Net Servicos (unrated).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Marcos Schmidt
Vice President - Senior Analyst
Corporate Finance Group
Moody's America Latina Ltda.
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16th Floor, Room 1601
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Brazil
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Marianna Fernandes Rodrigues Waltz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
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Moody's assigns Baa1 rating to Globo's USD 325 million proposed notes; outlook stable
No Related Data.
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