NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a 'B+/RR3' rating to Univision Communications, Inc.'s (Univision) new $750 million 5.125% senior secured notes due 2025. Fitch previously assigned a 'B+/RR3' rating to the reopened 5.125% senior secured notes due 2023, which were increased by $500 million. The Rating Outlook remains Stable. The proceeds of both issuances are to be used to fund the company's offer to purchase $1.2 billion aggregate amount outstanding of 6.875% senior secured notes due 2019 pursuant to the all-cash tender offer launched today. A complete list of ratings follows at the end of this release.
As proposed, Fitch views the transactions favorably as it will extend Univision's maturities and provide a modest reduction in interest expense of approximately $17 million.
KEY RATING DRIVERS
The ratings incorporate Fitch's positive view of the U.S. Hispanic broadcasting industry, given anticipated continued growth in number and spending power of the Hispanic demographic. Additionally, Univision benefits from a premier industry position, with duopoly television and radio stations in most of the top Hispanic markets, with a national overlay of broadcast and cable networks. The company's networks garner significant market share of Hispanic viewers and generate strong and stable ratings. This large and concentrated audience provides advertisers with an effective way to reach the growing U.S. Hispanic population.
Fitch expects Hispanic population growth to mitigate the impact of longer-term secular issues that are challenging the overall media & entertainment sector, namely, audience fragmentation and its impact on advertising revenue. While the Hispanic broadcast television audience is not immune to these pressures, Fitch expects that its growing total size will offset the impact of any audience fragmentation and drive ongoing ratings strength at Univision's television properties. This should result in low to mid-single-digit top-line growth at the television segment.
Fitch believes Univision's cost management efforts and growth in high-margin retransmission revenue will provide an offset to the rising programing investments. Fitch expects EBITDA margins levels in the 38% to 40% range in 2015. Long term, Fitch believes positive operating leverage from top-line growth and growth in high-margin retransmission revenue will drive margin improvement.
Recent new entrants in the Hispanic broadcast and cable network market will add to the competitive pressures facing Univision. However, Univision currently has incumbent advantage and dominant market presence. Fitch expects these factors, along with its pipeline of proven content from Televisa, to enable it to grow amid these increasing pressures.
Ratings concerns center on the highly leveraged capital structure, limited free cash flow (FCF) generation relative to total debt, as well as the company's significant exposure to advertising revenue. As of Dec. 31, 2014, Fitch estimates total leverage (including the subordinated convertible preferred debentures due to Televisa) and secured leverage of 8.8x and 7.8x, respectively. Fitch expects leverage metrics to remain relatively consistent when compared to 2014 as the company's operating profile will not benefit from the uptick in advertising revenues associated with the World Cup.
Fitch's key assumptions within our rating case for the issuer include:
--EBITDA margins of 38%-40% driven by growth and high margin retransmission revenue.
--Fitch expects leverage metrics to remain relatively consistent when compared to 2014 as the company's operating profile will not benefit from the uptick in advertising revenues associated with the World Cup.
--Fitch expects the company will continue to generate similar levels of positive FCF during the rating horizon.
Liquidity and Debt
Fitch regards current liquidity as adequate, particularly in light of minimal near-term maturities. At Dec. 31, 2014, liquidity consisted of approximately $56 million of cash, approximately $540 million available under the $550 million revolving credit facility (RCF) due 2018 (net of borrowings and letters of credit) and, $300 million available under the $400 million AR securitization facility (consisting of $300 million revolver and $100 million term facility). Fitch calculates 2014 FCF of approximately $143 million.
Fitch estimates at Dec. 31, 2014, Univision had total debt of $10.5 billion, which consisted primarily of:
--$4.6 billion in senior secured term loans due March 2020;
--$1.2 billion 6.875% senior secured notes due 2019;
--$750 million 7.875% senior secured notes due 2020;
--$815 million 8.5% senior unsecured notes due 2021;
--$1.2 billion 6.75% senior secured notes due 2022;
--$700 million 5.125% senior secured notes due 2023;
--$1.125 billion 1.5% subordinated convertible debentures issued to Televisa, due 2025. This note is a direct obligation of the parent HoldCo, Broadcasting Media Partners, Inc., but is serviced by dividends paid by Univision.
Univision's Recovery Ratings reflect Fitch's expectation that the enterprise value of the company, and thus, recovery rates for its creditors, will be maximized in a restructuring scenario (going concern), rather than a liquidation. Fitch employs a 7x distressed enterprise value multiple reflecting the company's FCC licenses in top U.S. markets. Fitch assumes a sustainable post restructuring EBITDA of approximately $880 million. Fitch estimates the adjusted distressed enterprise valuation in restructuring to be $6.1 billion. The 'B+' rating for the secured debt reflects Fitch's expectations for recovery in the 51%-70% range. The 'CCC+' rating on the $815 million senior unsecured notes reflects Fitch's expectations for 0% recovery.
Negative ratings actions could occur if operating results and FCF are materially lower than Fitch's expectations (noted above). This would be contradictory to Fitch's constructive view on the Spanish language broadcasting industry and Univision's positioning within it, and could indicate that the company is more susceptible to secular challenges than previously anticipated.
Positive ratings actions could occur if Univision delevers significantly from current levels, with indications that the company is on target to reach 7x-9x and 5x-6x total and secured leverage targets, respectively. Fitch expects deleveraging could occur largely through EBITDA growth, as well as modest debt reduction.
Fitch currently rates Univision as follows:
--Issuer Default Rating 'B';
--Senior secured 'B+/RR3';
--Senior unsecured 'CCC+/RR6'.
Additional information is available at www.fitchratings.com. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
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