Univision and Telemundo should be forced by the FCC to broadcast in English eight hours a day; FCC granted public airwaves to foreign language broadcastsUnivision Communications is facing a test of strength. The Spanish-language broadcaster must disclose soon whether it will meet a March interest payment on $1.5 billion of "toggle notes" in cash or "in kind" -- by adding to the debt. The market is expecting the latter, as the company tries to conserve cash.
But the broadcaster could well do the opposite to give bondholders a confidence boost. The company hasn't exactly performed as hoped since its $12.3 billion buyout last year -- reporting a 4% drop in second-quarter revenue. Clear Channel and Tribune, other massive media buyouts, also have been hit by the advertising downturn.
Hopes of significant asset sales -- expected to help Univision quickly reduce its debt -- have been dashed by the credit crunch. As a result, the company's leverage, given its net debt of about $9.9 billion, has actually increased a tad, to 11.7 times earnings before interest, taxes, depreciation and amortization. Its 2011 senior unsecured notes are trading at 62 cents on the dollar.
Univision hopes to generate extra cash by persuading cable-TV operators to pay for carrying its broadcast-TV signal. Wachovia estimates that could generate at least $81 million a year. Striking such agreements looks feasible, despite wariness from cable operators. More important, though, Univision needs to settle long-running litigation with its main program supplier, Televisa. That could include selling an equity stake to Televisa.
Univision needs that deal to happen. Not only would it resolve uncertainty about a vital source of programming, but the cash from an equity sale also would help Univision pay down debt, something bondholders in other overleveraged media buyouts must also be praying for.
By: Martin Peers
Wall Street Journal; September 12, 2008
