News Column

At Univision, the Signal's Still a Little Unclear

May 22, 2008


Univision Future is Still a Little Unclear

It's been apparent to observers for some time that Univision Communications Inc., due to the debt load assumed in its $12.3 billion sale to Broadcast Partners, a consortium of private investors, would face some challenging times. Even after a flurry of recent activity, the picture is no clearer.

On April 7, Univision borrowed $700 million of its $750 million senior secured credit facility. The draw, which, according to the company's 8-k filing was utilized for liquidity purposes, leaves Univision with $18 million left to borrow under the facility.

Last week, Univision's quarterly results were released, revealing that while revenues were up 5.8 percent from Q1 2007, the company's net loss more than doubled from $67 million first quarter last year, to $166.2 million this quarter. A key contributing factor was a more than ten-fold increase in interest expenses from $17.9 million in first quarter 2007 to $181.8 million in the first quarter of this year.

Fitch Ratings, the independent credit ratings agency, while taking no rating actions, commented that the company's results "were generally in-line with expectations," in spite of "weaker-than-expected results in radio and Internet."

A trial between Univision and Televisa looms on the horizon as well. Televisa, which supplies Univision with its extremely popular telenovelas, wants to terminate the long-term programming agreement, which expires in December 2017. Fitch estimates that Televisa's programming accounts for more than 35 percent of Univision's TV revenue. A trial loss could prove devastating to the company's finances and, probably, credit ratings, and could result in programming changes. At the request of both parties, the trial was delayed until July 1.

"My impression is that people are thinking the delay may be a positive step -- a sign that both parties want to take time to see if they can reach some kind of settlement," said Alex Ryshawy, director of research for Mission Capital Group, an investment bank primarily interested in the rapidly growing U.S. Hispanic market. While he believes the agreement is "pretty iron-clad from a legal perspective," the extended time may allow Univision the opportunity to work toward a settlement

The signs are mixed for Univision's future, according to most observers. On the upside is the fact that traditionally, Spanish-language media's advertising revenues have not been commensurate with its ratings. Mr. Ryshawy sees potential for growth in Univision's advertising revenues if the company is able to capitalize on this deficiency and close that gap. The hiring of Joe Uva, who has an extensive background as an advertising executive, as CEO in April 2007 was an appropriate step in that direction, according to Mr. Ryshawy. However, he adds that even if those efforts prove successful, the current economy may not allow Univision to turn the corner.

"They used a fair amount of leverage to make the acquisition, and that's in line with the whole private equity model, but I think what they didn't envision was the downturn of the economy." Mr. Ryshawy states. "No one at the time was anticipating the current economic situation and housing crisis, how it would unfold, and how that's impacted the advertising market. That's the variable that's probably a bit of a surprise."

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