6915: Hasta La Vista, Univisión…?

From The Miami Herald…

Univisión struggles to overcome recession

By Meg James
Los Angeles Times Service

LOS ANGELES—When Spanish-language broadcasting giant Univisión Communications was sold for $13.7 billion three years ago, the highly leveraged deal was, in the words of one veteran banker, “priced for perfection.”

Given the $10 billion in debt the buyers were assuming, the slightest hiccup in the company’s financial performance would have a cascading negative effect.

The buyers, a consortium of investors including entertainment mogul Haim Saban, were counting on several factors to justify the steep purchase price: the nation’s exploding Hispanic population and the popularity of Spanish-language programming, coupled with the promise of robust advertising growth. They expected to hold the assets for a few years, then sell at a tidy profit.

But it’s not a perfect world.

In the two years since the buyout, the U.S. economy has collapsed, dragging down advertising to media companies. Adding to the economic distress, Univisión has been mired in a costly legal battle with its primary programming partner.

The big payday for Univisión’s owners, which include well-heeled private equity companies, seems far less certain. Instead of riding a high wave to easy profits, Univisión executives have been working furiously to dig the company out of its hole.

WROTE DOWN ASSETS
During the past year, the broadcaster has written down assets by $5.3 billion, and some industry insiders now believe the nation’s largest Spanish-language media company is worth closer to $9 billion—slightly less than what it owes.

In recent months, Univisión has been putting out fires on multiple fronts to shore up its finances and to protect its programming pipeline.

In January, it settled a nagging lawsuit brought by its longtime programming partner, Grupo Televisa of Mexico, which had threatened to strip Univisión of its most popular and profitable shows. The resolution guaranteed Univisión the right to broadcast Televisa’s hugely popular soap operas, including Cuidado con el Angel (Be Careful With the Angel), through 2017.

Two weeks ago, Univisión bought breathing room by refinancing $500 million in debt, pushing back the due date by three years to 2014. The extension means that Univisión no longer has to worry about burning through its cash within the next two years.

CABLE FEES
And during the past few months, Univisión achieved one of its highest priorities—getting cable and satellite TV operators to pay the company to carry its programming. The agreements with Time Warner Cable, DirecTV, AT&T and others should bring Univisión $175 million in 2009, and as much as $350 million annually by 2014.

The cable-subscriber fees help Univisión diversify its revenue and, for now, make up for the decline in ad revenue.

Univisión’s chief financial officer, Andrew Hobson, said the company’s actions during the past six months had put it on a stronger footing and should allow it to weather other economic storms.

“Our balance sheet is now bulletproof for even the most draconian scenarios,” Hobson said. “We don’t feel that we have covenant risks or liquidity risks for at least another five years.”

Still, credit-rating agencies worry that Univisión could default on loans that total $9.7 billion.

“This clears the runway a little bit for them, but we still have concerns about their liquidity and their ability to make their debt-amortization payments,” said Standard & Poor’s credit analyst Michael Altberg, who acknowledged that Univisión had bolstered its position.

“Before their credit amendment, they didn’t have that much of a cushion.”

Barclays Capital debt analyst Andrew Finkelstein said Univisión executives did “exactly what they needed to do for now.”

INCREASING REVENUES
But Univisión’s challenge in the next few years, he said, will be to increase revenue—a difficult task during an economic recession.

Univisión’s predicament is not unusual for a company sold in a leveraged buyout at the top of the market.

In 2006, Univisión’s then-controlling shareholder, billionaire A. Jerrold Perenchio, orchestrated a bidding war for the company.

The Spanish-language broadcaster had been showing dramatic growth, along with the Hispanic population. Univisión’s upside seemed unlimited.