Fitch: Univision outlook stable


That ain’t bad in the current economic climate. Fitch Ratings has finished a review of Univision’s credit ratings and kept them right where they were.

“Over the last 12 months, Fitch has commented that Univision faced several obstacles over the intermediate term. Importantly, two of those obstacles – payment of the second-lien loan and the Televisa litigation – have largely been resolved. Fitch believes the company’s remaining major obstacles include the existing economic downturn, the company’s ability to make cash interest and term loan principal amortization payments, meet its covenant step-downs and repay the $500 million in notes that come due in 2011. In Fitch’s view, Univision should be able to meet these obligations without defaulting on its debt,” Fitch said in announcing it latest ratings action – or rather, non action.

“While 2009 should be extremely difficult for advertising revenues, Fitch believes retransmission revenues and paid-in-kind (PIK) interest should provide the additional liquidity needed for debt compliance over the short term. Fitch’s current expectations are for advertising revenue to be down in the 10% range, comprising national advertising flat to down in the low single digits and local advertising down over 15%,” the ratings firm said.

With interest rates coming down, costs being cut “and a stabilizing economy in 2010,” Fitch says Univision should be able to meet leverage covenants as the step down and deal with $500 million of senior notes that mature in 2011.

“While not explicitly reflected in existing ratings, Fitch notes that the company’s bank facility allows for an equity cure in the event of a covenant breach. Should advertising revenues be weaker than Fitch’s current expectations, Fitch estimates that an equity cure amount could be relatively minor compared with equity contributions to date from the sponsor group,” the ratings commentary stated. It noted that if the private equity firms did not put up cash to cure a covenant breach, the resulting re-pricing of Univision’s bank debt would “dramatically” reduce future cash flows, so the equity investors would be expected to step up to the plate unless they think the broadcasting ad market won’t ever recover.

Fitch announced the following rating actions for Univision Communications:

–Issuer Default Rating (IDR) affirmed at ‘B’;
–Senior secured affirmed at ‘B+/RR3’;
–Senior Unsecured revised to ‘CCC/RR6’ from ‘CCC+/RR6’.
The Rating Outlook is Stable.
RBR/TVBR observation: Like many other economic forecasters, Fitch is now looking to 2010, not anytime this year, for a recovery to take hold. We note that the ratings firm is also getting used to the idea of loan covenant breaches, with Fitch suggesting that the private equity sponsors should be able to pony up a little cash to protect their investment should Univision trip a loan covenant.