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Global Credit Research - 06 Oct 2010
Approximately $10.2 billion of debt instruments affected
New York, October 06, 2010 -- Moody's Investors Service changed Univision Communications,
Inc.'s (Univision) rating outlook to stable from negative
following the company's announcements that it is amending its Program
License Agreement (PLA) with Grupo Televisa, S.A.B.
(Televisa; Baa1, stable outlook) in connection with a $1.2
billion cash investment in Univision by Televisa, and launching
a partial refinancing of its capital structure. The outlook change
reflects the reduced operating uncertainty provided by the extension of
the term of the PLA, which along with the proposed financing transactions
would reduce Univision's refinancing risk related to its sizable
2014 and 2015 debt maturities. Univision's B3 Corporate Family
Rating (CFR), B3 Probability of Default Rating (PDR), SGL-3
speculative-grade liquidity rating and debt instrument ratings
are not affected.
..Issuer: Univision Communications, Inc.
....Outlook, Changed To Stable From
Moody's assumes in the stable rating outlook that the refinancing,
PLA amendment and Televisa investment are completed as outlined by the
company. Televisa's investment and Univision's extension
of at least $3.25 billion of 2014/2015 maturities and regulatory
approval are conditions to the PLA amendments (which at closing of the
Televisa investment triggers an extension of the PLA term to 2020 from
2017). However, Univision
contemplates completing the proposed refinancing prior to the closing
of the PLA amendment and the receipt of Televisa's investment.
Moody's would re-evaluate the ratings and/or the rating outlook
if the proposed refinancing does not occur.
Univision's B3 CFR continues to reflect its very high debt-to-EBITDA
leverage (approximately 13x LTM 6/30/10 incorporating Moody's standards
adjustments and the effects of the proposed transactions and excluding
non-cash advertising revenue and certain add-backs such
as sponsor management fees that the company utilizes in its EBITDA calculation)
and continued, albeit lower, refinancing risk associated with
the remaining debt maturing in 2014/2015. Moody's estimates
Univision would have approximately $4.8 billion of debt
maturities in 2014/2015 after the proposed transactions (assuming all
of the proceeds from the Televisa investment are utilized to repay existing
debt) and reducing such maturities to $2.5 billion or less
is a condition to extending the term of the PLA to 2025 from 2020.
Moody's believes the $1.125 billion unguaranteed convertible
debenture at Broadcast Media Partners, Inc. (Univision's
ultimate parent) to be issued to Televisa is debt-like given the
instrument's 2025 maturity, 1.5% cash coupon
rate and liquidation preference ahead of common equity, based on
a preliminary review of the instrument's terms. Moody's
expects debt-to-EBITDA leverage to fall to a level slightly
below 12x by the end of 2010.
The stable rating outlook reflects Moody's view that the likelihood
of a downgrade in the near term is low if the proposed transactions are
completed as outlined, and that Univision will be able to meet its
debt service while steadily de-leveraging over the next two years.
Moody's also does not anticipate in the stable outlook a meaningful
deterioration in economic conditions over the period.
Moody's believes the extension of the PLA alleviates the uncertainty
that existed regarding Univision's continued access to exclusive
U.S. Spanish-language broadcast rights for Televisa's
popular programming beyond the existing 2017 PLA expiration and will be
beneficial to operations over the long-term. The initial
increase in the licensing fees (Televisa's royalty rate is increasing
to 11.91% from 9.36% on an expanded royalty
base) is manageable within Univision's cash flow and mitigated at
the outset by the elimination of certain soccer rights fees, and
additional programming income. Moody's anticipates the broader
rights Univision obtained to Televisa's programming (including cable
network and Mexican soccer league content) and in digital distribution
channels in the U.S. creates good potential for the company
to ultimately increase its revenue growth rate. Moody's anticipates
the increase in the license fee paid to Televisa in 2018 (royalty rate
is increasing to 16.22% from 11.91%) will
be roughly offset by the elimination of license fees being paid to Venezolana
del Television C.A. (Venevision) as Univision's PLA
with Venevision expires at the end of 2017. Moody's expects
Univision will utilize Televisa or internally-developed content
to replace the programming obtained from Venevision with minimal effect
Televisa's funding is a sunk cost once made and it has no further
investment commitments to Univision (Televisa obtains a 3-year
option exercisable three years after the initial investment to acquire
an additional 5% of Univision at a then agreed upon fair market
value, but any exercise is discretionary). Moody's
nevertheless believes Televisa may be motivated to preserve the option
value of its sizable potential equity position over the longer term provided
it has sufficient financial flexibility to do so.
The transactions do not meaningfully alter Univision's liquidity
position for the next 12 months. Cash interest costs will increase
due to the refinancings (net of any debt pay down with the proceeds from
the Televisa investment) and be a drag on free cash flow but Moody's believes
the increaes is manageable and the existing cash balance and projected
free cash flow should comfortably cover the $46.6 million
of required quarterly term loan amortization through March 2012 ($18.6
million thereafter). Any reduction of first lien senior secured
debt will modestly improve covenant headroom, although Moody's
anticipates Univision will maintain at least a 20% EBITDA cushion
within the maximum first-lien senior secured leverage covenant.
Moody's expects to assign ratings on the proposed bond and extended
portion of the credit facility in the near future. Univision is
evaluating how to utilize the $1.2 billion Televisa investment
proceeds, although Moody's anticipates they will be used to
repay existing debt. Moody's does not anticipate that the
mix of debt repaid will affect the B2 senior secured first lien rating
or the Caa2 rating on the senior unsecured PIK toggle notes. Loss
given default assessments are subject to change depending on the mix of
debt subsequent to the proposed transactions.
The last rating action was on June 24, 2009 when Moody's assigned
a B2 rating to Univision's 12% senior secured notes due 2014.
For additional information on Univision's ratings, please see the
credit opinion on www.moodys.com.
For the assignment of Univision's ratings, Moody's has used
its methodology for the Global Broadcast Industry, which can be
found at www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating Univision can also
be found in the Rating Methodologies sub-directory on Moody's website.
Univision, headquartered in New York, is the leading Spanish-language
media company in the United States. Annual revenue is approximately
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's changes Univision's rating outlook to stable
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