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Global Credit Research - 09 Nov 2010
Approximately $500 million of debt affected
New York, November 09, 2010 -- Moody's Investors Service assigned a Caa2 rating to Univision Communications,
Inc.'s (Univision) proposed $500 million senior unsecured
notes due 2021. Univision plans to utilize the net proceeds from
the notes to fund a tender offer for approximately $460 million
of its $1.75 billion senior toggle notes due March 2015
(2015 Toggle Notes) and related tender/transaction costs. Univision
also indicated that HSR regulatory approval was received for its proposed
transactions with Grupo Televisa, S.A.B. (Televisa;
Baa1, stable rating outlook). Univision's B3 Corporate Family
Rating (CFR), B3 Probability of Default Rating (PDR), SGL-3
speculative-grade liquidity rating and stable rating outlook are
..Issuer: Univision Communications, Inc.
....Senior Unsecured Regular Bond/Debenture
due 2021, Assigned Caa2, LGD6 - 92%
The proposed note offering favorably extends Univision's maturity profile
and further reduces the concentration of maturities in 2014/2015,
which were cut considerably through the company's October 2010 refinancing
transactions. Moody's believes the transaction is a continuation
of Univision's efforts to proactively improve its capital structure
and maturity profile, although refinancing risk through 2017 and
leverage remain high.
Moody's estimates Univision will have approximately $2.9
billion of debt maturing in 2014/2015 upon completion of the proposed
bond offering. An event of default will occur if the previously
announced $1.2 billion proposed cash investment from Televisa
is completed and Univision does not utilize at least $1.1
billion of the proceeds to retire 2015 Toggle Notes by the later of March
31, 2011 or 45 days after the Televisa investment closes.
Moody's anticipates Univision will exercise the call option or retire
by some other means at least $1.1 billion of the 2015 Toggle
Notes (initially callable on March 15, 2011 at 104.875) from
the Televisa investment proceeds and this would further reduce 2014/2015
maturities to approximately $1.8 billion.
Completion of the Televisa transactions is factored into the rating,
but Moody's believes the HSR approval satisfies the last meaningful
contingency to closing the transactions (the October 2010 refinancing
satisfied the maturity extension conditions). Moody's anticipates
the proposed refinancing and Televisa investment and related transactions
will meet the condition (reducing 2014/2015 maturities to $2.5
billion or less by 2/28/14) to further extend the term of the Program
License Agreement (PLA) with Televisa to the later of 2025 or seven and
a half years after Televisa disposes of at least 2/3rds of its 35%
investment. Such extension provides greater assurance that Univision
will retain access to a material source its programming, which benefits
long-term operating cash flow generation.
Because Univision elected to PIK the March 2011 coupon on the 2015 Toggle
Notes, the proposed offering will increase cash interest expense
in 2011's first half. However, the offering is projected
to reduce cash interest costs slightly in the second half of 2011 and
beyond as Moody's expects Univision will elect to pay cash interest
on the 2015 Toggle Notes (interest accrues at 10.5% if the
PIK election is made, but the rate is 9.75% if paid
in cash) beginning in September 2011 and the proposed 2021 notes are likely
to have a lower coupon. Moody's estimates annual run rate
cash interest costs following the Televisa investment and use of proceeds
thereof, the proposed note offering and tender offer, and
an assumed cash interest election on the 2015 Toggle Notes will be in
a $560-575 million range (including the effect of swaps)
vs. approximately $471 million for the LTM period ended
9/30/10 (excluding the $170 million of LTM interest paid-in-kind
on the 2015 Toggle Notes, which coupon payments are required to
be paid in cash beginning in March 2012).
The new notes will be guaranteed by all of Univision's domestic operating
subsidiaries that guarantee its senior secured credit facility.
The Caa2 rating and LGD6-92% assessment on the proposed
senior unsecured notes reflect their effective subordination to the material
amount of secured debt. The notes would likely absorb significant
loss in the event of a default. Moody's does not anticipate
that the anticipated debt repayment from the Televisa investment proceeds
will affect the Caa2 rating on the proposed senior unsecured notes,
although loss given default assessments are subject to change.
Univision's B3 CFR reflects its strong and leading market position in
Spanish-language media within the United States and good intermediate-term
growth prospects tempered by its very high leverage, vulnerability
to cyclical advertising and high refinancing risk associated with 2014-2017
debt maturities, although recent refinancing transactions have alleviated
this concern to some extent. Growth prospects supported by Hispanic
demographic trends, as well as the market position and strong operating
margins support Univision's unlevered cash flow generation. The
risk of a restructuring of its highly leveraged balance sheet (gross debt-to-EBITDA
is approximately 13.3x LTM 9/30/10 incorporating Moody's standard
adjustments and excluding non-cash advertising revenue) nevertheless
remains elevated, particularly if economic conditions were to weaken.
A deterioration in liquidity including an inability to achieve and sustain
positive free cash flow, a decline in projected covenant cushion,
heightened concern that maturities cannot be refinanced, renewed
economic weakness, or heightened risk of a discounted debt repurchase
or other restructuring, could result in a downgrade. The
ratings will also be vulnerable to a downgrade as long as debt-to-EBITDA
is above 10x, although a downgrade may not occur if the company
has adequate liquidity given the potential for meaningful de-levering
during economic expansions.
Good operating execution or an equity offering that leads to consistent
free cash flow generation and debt reduction after factoring in all capital
costs (including PIK interest), debt-to-EBITDA sustained
below 8.5x and free cash flow (under the assumption that all interest
is paid in cash) exceeding 3% of debt could position the company
for an upgrade. A good liquidity position including a high degree
of confidence that Univision can refinance its maturities and maintain
access to Televisa's programming would be necessary for an upgrade.
The last action was on October 20, 2010, when Moody's assigned
a B2 rating to Univision's $750 million senior secured notes
due 2020, and B2 ratings to the amended and extended term loan and
revolver portion of the company's senior secured credit facility.
For additional information on Univision's ratings, please see the
credit opinion on www.moodys.com.
The principal methodologies used in this rating were Global Broadcast
Industry published in June 2008, Global Standard Adjustments in
the Analysis of Financial Statements for Non- Financial Corporations
- Part I, published in February 2006, and Probability
of Default Ratings and Loss Given Default Assessments Methodology published
in June 2009.
Univision, headquartered in New York, is the leading Spanish-language
media company in the United States. Revenue for the LTM ended 9/30/10
was approximately $2.2 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's Analytics'
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns a Caa2 rating to Univision's new senior unsecured notes
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