Univision: After The LBO
More than a year after going private, Spanish-language media player must convert ratings success into revenue growth
By Joshua Hamerman August 18, 2008
When Spanish-language media giant Univision Communications was acquired by a five-member private equity consortium for $13.7 billion on March 29, 2007, the buyers paid a multiple that would be unheard of in today's market: 12 times debt-to-Ebitda.
Indeed, an M&A attorney who advised on the transaction says, "The company management got an excellent deal for shareholders, but banks aren't doing those types of deals right now."
Adds Heather Goodchild, a primary credit analyst who covers Univision for Standard & Poor's, "When the deal closed, and even as the bidding was going on, it looked like an extraordinary price, so our view of the valuation has not changed. It was a very high price and the debt taken on is an extremely onerous burden."
That debt continues to plague Los Angeles-based Univision almost 17 months after it went private. As of June 30, the company's outstanding debt totaled $9.9 billion.
On Aug. 8, Univision announced its financial results for the second quarter and first half of 2008. The company reported a 4.3% drop in revenue during the quarter to $533.1 million from $557.3 million in the year-prior period. Univision also disclosed a 10.9% decrease in Ebitda during the quarter to $219.9 million from $246.8 million in 2007's second quarter.
On Aug. 11, Moody's Investors Service downgraded Univision's probability-of-default and corporate family ratings to B2 from B1, senior secured debt to B1 from Ba3, senior unsecured notes to Caa1 from B3, and senior secured second-lien asset sale bridge facility to Caa1 from B3. Univision remains on a Moody's review for another possible downgrade. According to the rating agency, the downgrade was prompted by the earnings announcement as well as the advertising market downturn, which has affected Univision and other media companies.
Moody's also downgraded Univision because the latter received less cash than it expected from the sale of its music division and other assets. Univision announced it would sell the subsidiary to Universal Music Group for $153 million in February, but only $113 million of that sum will be available upon closing. The company has a $500 million second-lien asset sale bridge loan which matures in March 2009.
"The most immediate challenge to paying off its debt is that there is a March 2009 maturity and a meaningful portion of that needs to be met with asset sales, but the asset sales are going very slowly," says Goodchild. Univision's two groups of assets with the largest amount of cash flow are station and property clusters in Las Vegas and San Diego, but they have not yet been put on the block.
Univision executives were unavailable for comment, but a company spokeswoman says, "While Univision continually looks to trim its under-performing assets, given the current state of the credit markets, we are proceeding cautiously. If we don't receive bid prices that would be accretive to the company, we will wait to sell. However, we will continue to look at acquisitions and market expansion as a source of growth."
Saban Capital Group, Providence Equity Partners, TPG, Thomas H. Lee Partners and Madison Dearborn Partners agreed to buy Univision on June 27, 2006, four months after the company went on the market. The group won a hotly-contested auction against a buyout consortium led by Mexican media behemoth Grupo Televisa, which owned 11.4% of Univision at the time and continues to provide it with most of its primetime programming. The exclusive programming agreement is valid until 2017, but Televisa and Univision have been embroiled in litigation for the past two years, with Televisa claiming Univision is delinquent on advertising royalty payments and unlawfully editing its TV programs. The suit is expected to go to trial on Oct. 14.
Despite troubles with its debt, Univision is still just as strong a player as it was before its LBO, says Don Parsons, vice president of sales at CaribeVisión, which competes with Univision in New York, Miami and Puerto Rico. Univision is still the most-watched Spanish-language TV network in those markets. Goodchild adds, "Univision just needs to convert the audience ratings into stronger revenue growth."
A spokesman for Univision's main Latino market competitor in the US, NBC Universal's Telemundo, declined to comment.
According to Nielsen Media Research, the Univision TV network pulled in the third-largest primetime audience of adults between 18 and 34 in the US during the second quarter.
(c) 2008 Investment Dealers' Digest and SourceMedia, Inc. All Rights Reserved.
