Fitch Affirms Televisa at 'BBB+'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed Grupo Televisa, S.A.B.'s (Televisa) foreign and local currency Issuer Default Ratings (IDRs) at 'BBB+' as well as the company's long-term national scale rating at 'AAA(mex)'. A complete list of rating actions follows at the end of this release. The Rating Outlook is Stable.

Televisa's 'BBB+' ratings reflect the company's strong business position as the leading Mexican TV Broadcaster and one of the largest media companies in the Spanish-speaking world, diversified media and telecommunications portfolio, solid financial position underpinned by its robust free cash flow generation and liquidity, as well as the extended debt maturity profile. Televisa's ratings factor in the company's exposure to economic cycles, strong competition across business segments, and increasing regulatory pressure in Mexico.

The ratings also reflect Televisa's strategy to expand its business through organic growth and cash investments for acquisitions. The recent investments made by Televisa include its purchase of MXN7 billion convertible notes and USD195 million debt instrument of Tenedora Ares, S.A.P.I. de C.V. (ARES). ARES is the owner of 51% of Grupo Cable TV, S.A. de C.V. (Cablecom), a Mexican cable operator. Televisa has also invested in Broadcasting Media Partners (BMP), the parent of Univision Communications, Inc. (Univision), a U.S. based Spanish language broadcast network, and GSF Telecom Holdings, which owns Iusacell, a Mexican mobile operator. The company's growth strategy continues to be centered on telecommunication in Mexico and the U.S. media sectors. If Televisa receives regulatory approval to convert its investment in ARES into equity, its business position and cash generation will improve.

Key Rating Drivers

Robust Cash Generation from Contents:

Televisa's high quality in-house content production has enabled it to maintain its largest broadcasting market position in Mexico, which has given it a stable audience and reliable advertising revenue stream. The company generates well over 10% of its total revenues from network subscriptions and licensing/syndication businesses, as a result of the increased pay TV subscribers globally including Mexico and higher royalties from contents sales. Televisa distributes its contents to more than 50 countries, including the United States through a Program License Agreement (PLA) with Univision which provides a stable royalty income until 2025, or beyond, should Televisa remain as a shareholder. Content sales also improve geographic and currency diversification which helps mitigate the risk stemming from the maturity and intense competition of the Mexican broadcast industry.

Increasing Regulatory Pressure:

Fitch expects the constitutional reform on the Mexican media sector to result in an increased level of competition in the long-term; the impact should be manageable for Televisa, however, as its content production ability remains intact, which continues to be key to advertisement revenue. Fitch does not foresee any significant dilution of the company's market share over the medium term, and thus its cash flow and financial profile will remain relatively stable. It will require significant time and resources for new entrants to become competitive in their contents' quality against Televisa.

In March 2014, the company was declared as the 'preponderant' operator in the broadcasting sector and unfavorable regulatory measures were imposed on the company. These measures include broadcasting infrastructure sharing and making available the company's over-the-air channels to third party platforms on the same terms and conditions as those offered to its affiliates. The reform measures will also allow two new broadcasters in the market. Televisa has already been subject to the 'must-offer' regulation since September 2013 and guided for only about MXN1.4 billion revenue decline during 2014 from this new measure, which is less than 2% of the total sales Fitch forecasts in 2014. On the other hand, Televisa's telecom operations could benefit from a more favorable competitive environment from the regulation.

Operational Diversification Continues:

Solid growth in the company's pay-TV and telecom businesses has continued to support its diversification from broadcast advertising revenues. Integration of the content production and solid distribution channels has been the company's key business strategy enabling a more stable operating performance and stronger business profile compared to its regional peers. In the first half of 2014, Televisa generated more than half of its total operating segment income from non-contents segment, with Sky, its direct-to-home (DTH) satellite operation, and Telecommunications segment accounting for 29% and 24% of the total operating segment income, respectively. The company has maintained a double-digit revenue growth for these businesses which has helped mitigate slowing industry growth from the mature advertising business, on which the competitive pressure will further increase following the entrance of new broadcasters.

Strong Cash Generation:

Fitch forecasts Televisa to maintain its positive FCF generation over the medium term. The company's cash flow from operations is likely to continue to be robust, around MXN20 billion in 2014 and 2015, which will comfortably cover its capex, which is expected to remain in line with the 2013 level of over MXN14 billion. During the past three years (2011 - 2013), Televisa spent approximately MXN12 billion on average for capex annually, primarily to improve its business position in Sky and Telecommunications segments, as well as to invest in the mandatory digitalization. In the same period, due to the high capex, dividend payments have remained small at about MXN1 billion per year.

Solid Financial Profile:

Fitch expects the company's total adjusted-debt including satellite leases-to-EBITDA ratio to remain below 2.5x and its net-debt-to-EBITDA ratio to remain below 1.5x in the long term, on a pro forma basis reflecting the recent Cablecom transaction which needs regulatory approval. As of June 30, 2014, the company's gross and net leverage were 2.7x and 1.5x. These ratios were increases from 2.3x and 1.6x at end-2013. During LTM June 2014, Televisa generated MXN28.6 billion EBITDA (Consolidated Operating Income plus depreciation and amortization). Amid stable FCF generations, these metrics should gradually strengthen barring any further sizable acquisition investments.

The company also has a robust liquidity as of June 30, 2014 with cash and temporary investments of about MXN37 billion comfortably covering MXN853 million of short-term debt. The company does not face any significant debt maturities until 2016, when approximately MXN9 billion of financial obligations become due, while its access to capital market should remain solid.

RATING SENSITIVITIES

Fitch's expectation of sustained increases in the leverage ratios, driven by high capex and sizable acquisitions, could result in a negative rating action. In addition, any significant loss of market share, or profitability erosion due to the increased competitive pressure in its key Mexican broadcasting operation could also pressure the ratings.

Conversely, further geographical and business diversification away from the Mexican broadcasting market, coupled with consistent free cash flow generations and a lower leverage could positively affect the ratings.

In conjunction with the affirmation of Televisa's IDRs at 'BBB+' and the long-term national scale rating at 'AAA(mex)', Fitch affirmed the following ratings:

--USD500 million 6% senior unsecured notes due 2018 at 'BBB+';

--USD600 million 6.625% senior unsecured notes due 2025 at 'BBB+';

--USD300 million 8.5% senior unsecured notes due 2032 at 'BBB+';

--MXN4.5 billion 8.49% senior unsecured notes due 2037 at 'BBB+/AAA(mex)';

--USD600 million 6.625% senior unsecured notes due 2040 at 'BBB+';

--MXN6.5 billion 7.25% senior unsecured notes due 2043 at 'BBB+/AAA(mex)';

--USD1 billion 5% senior unsecured notes due 2045 at 'BBB+';

--MXN10 billion certificados bursatiles due 2020 at 'AAA(mex)';.

--MXN6 billion certificados bursatiles due 2021 at 'AAA(mex).

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', May 28, 2014.

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=846915

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Contacts

Fitch Ratings
Primary Analyst
Alvin Lim, CFA
Director
+1-312-368-3114
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gilberto Gonzalez
Associate Director
+52-81-8399 9100
or
Committee Chairperson
Sergio Rodriguez, CFA
Senior Director
+52 81 8399 9100
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Alvin Lim, CFA
Director
+1-312-368-3114
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gilberto Gonzalez
Associate Director
+52-81-8399 9100
or
Committee Chairperson
Sergio Rodriguez, CFA
Senior Director
+52 81 8399 9100
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com