Moody’s Investors Service announced that it has changed the rating outlook for LBI Media (aka Liberman Broadcasting) to “stable” from “negative.” LBI has approximately $500 million of debt rated by Moody’s.

The rating agency said the upgrade was “based on our expectation that leverage will decline over the next year and LBI will generate positive free cash flow in 2011, supported primarily by growth in the television segment.” Moody’s also affirmed LBI’s Caa1 corporate family and probability of default ratings, as well as its B1 senior secured bank debt and Caa2 senior subordinated bond ratings.

“Strong Nielsen ratings and expanded coverage for LBI’s Estrella TV network, combined with continued favorable growth trends in the US Hispanic population and advertising targeting this demographic, will likely drive revenue and cash flow growth and enhance the value of LBI,” Moody’s said.

But there is also financial pressure cited. “LBI’s high leverage (approximately 12 times debt-to-EBITDA for the trailing twelve months ended March 31, 2010) and negative free cash flow pose challenges for managing a business reliant on cyclical advertising spend, especially given the March 2012 maturity of LBI’s bank debt, and the Caa1 corporate family rating incorporates these risks. The later maturity of a meaningful amount of junior capital (approximately $275 million of bonds junior to approximately $160 million of bank debt as of March 31, 2010) improves LBI’s prospects for access to the loan market, but the cost of debt will likely rise significantly with a refinancing,” said Moody’s. “LBI’s modest scale and its geographic concentration also constrain the company’s ratings.”

The stable rating outlook assumes EBITDA growth will enable LBI to generate positive free cash flow and reduce leverage to less than 10 times debt-to-EBITDA by the end of 2011, according to Moody’s.

Here are the ratings actions:

LBI Media, Inc.

….Outlook, Changed To Stable From Negative

….Affirmed Caa1 Corporate Family Rating

….Affirmed Caa1 Probability of Default Rating

….Affirmed Caa2 rating on Senior Subordinated Bonds, LGD5, 74%

….Affirmed B1 rating on Senior Secured Bank Credit Facility, LGD2, 22%

Spanish language specialist LBI Media owns and operates seven television stations and 21 radio stations in Los Angeles, New York, Houston, Dallas-Fort Worth, Phoenix, San Diego, and Salt Lake City. The company also has affiliation agreements with 23 television stations.