Fitch Assigns Initial 'BB-' IDR to TV Azteca; Outlook Stable

MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has today assigned the following initial International Scale ratings to TV Azteca, S.A. de C.V. (TV Azteca):

--Long-term Issuer Default Rating (IDR) 'BB-'

--Local Currency IDR 'BB-'.

The Rating Outlook is Stable.

TV Azteca's ratings reflect its business position as the second largest TV broadcaster in Mexico with national presence and one of the largest Spanish speaking TV companies worldwide. The ratings consider the company's financial profile and strong cash generation, which in turn has been used in past years to finance growth, pay dividends, capital reductions and share repurchases. TV Azteca's ratings are limited by the mature stage of the industry, high competition from traditional and new participants, limited revenue diversification base, as well as the company's debt structure and financial flexibility.

TV Azteca's business position reflects its stable market share in the domestic market. Mexico's TV broadcasting market is comprised of two national networks (Grupo Televisa, S.A.B. and TV Azteca) and smaller regional and local broadcasters. Television continues to be the most important mass media in Mexico for advertisers. The company's revenues are supported in the attractiveness of its internally produced content which allows it to align advertisers with specific demographics.

Traditionally, advertisers with presence in broadcasted TV in Mexico are engaged in less cyclical segments such as consumer goods and services, which in turn have been translated into stable cash flows during economic cycles. During 2010 TV Azteca's revenues grew 15.9% vs. 2009, compared to a national GDP growth of 5.5%. In addition, revenues increased as a result of the World Cup during June-July 2010 and improved economic conditions. Special events such as Olympics and World Cup are recurrent sources of revenues however they are not present every year.

TV Azteca's profitability has remained strong reflecting higher and stable audience ratings, which in turn have translated into better pricing (price linked to rating points) and management's strict cost & expenses control. Management has implemented incentives to sales force in function of ratings; on the costs and expenses side, while COGS has remained relatively stable at 51-52% of Revenues, despite the World Cup special events, SG&A have declined as a percentage of sales to 11% in 2010, from 12% in 2009, 12.8% in 2008 and 13.2% in 2007. As a result, EBITDA Margin reached 40.9% in 2010, similar to 41.4% at year-end 2009.

TV Azteca's financial profile is strong for the rating category and has been stable in recent years. Total Debt to EBITDA for 2010 was 2.0 times (x) compared to 2.2x and 2.5x at year-end 2009 and 2008, respectively. For the same periods, Interest expense covered by EBITDA was 4.8x, compared to 4.4x and 3.9x, respectively. Fitch expects that TV Azteca's main credit metrics will remain strong as a result of stable cash generation and debt amortization.

In recent years internally generated cash has been the company's main source to finance growth and cash distributions to shareholders. The company's strategy continues to be focused in the production of robust programming which requires investment in talent and facilities. Management guidance for 2011 includes capex of approximately UD30 million and dividend payments of approximately USD25 million, which Fitch sees manageable for the company's forecasted cash generation and that those levels will remain relatively stable in the near future.

Liquidity risk is low with total debt as of March 31, 2011 of MXN9.251 million, short -term debt of MXN1.916 million and cash of MXN5.658 million. However, the company's financial flexibility is limited by its restricted access to debt markets (banks and capital markets). Furthermore, an important portion of consolidated debt (63%) is secured by 22% of national advertising revenues, 3.7% is secured by assets and 12% is guaranteed by TV Azteca's main subsidiaries.

TV Azteca's debt is comprised of structured Certificados Bursatiles of MXP$6,000 million which start amortizing in 2011 through 2020, bank loans of MXP1,818 million and MXP1,433 million (USD120 million) financing with American Tower Corp. maturing in 2020 and 2069.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' dated Aug. 16, 2010

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646

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