Moody’s upgrades Univision credit rating, easing path to IPO
By Meg James
Univision Communications is preparing for a public offering of its shares, which would enable owners of the Spanish-language media giant to begin their long-planned exit.
This week, Moody’s Investors Service issued an upgrade in the rating outlook for Univision — helping clear the way for a public offering that is expected to occur next year, according to people close to the company who asked not to be identified discussing sensitive matters.
The New York company’s ownership group — which includes Los Angeles billionaire Haim Saban, several private equity firms and the Mexican entertainment juggernaut Grupo Televisa — has not finalized plans for an IPO.
However, several of the owners have concluded that a public offering of stock representing less than 50% of the company would be the best route to recoup some of their investment, according to a person familiar with the discussions.
The owners have been weighing a public offering in mid- to late 2015 in an effort to capitalize on the strength of the stock market and Univision’s improved balance sheet. They want to sell the stock in advance of the 2016 presidential election cycle, which is expected to produce a bounty of campaign cash for Univision as politicians turn to Spanish-language media in an effort to woo Latino voters.
The media giant, which owns the fifth-largest TV network in the U.S., has long been considered a jewel on Wall Street because of the growing influence of Latinos in the U.S.
Univision boasts two leading Spanish-language broadcast networks, several cable channels, television stations and a chain of popular Spanish-language radio stations.
Until now, the company’s debt of roughly $9.7 billion — a legacy of the company’s 2007 leveraged buyout — was seen as an obstacle to a strong offering in the public markets.
But on Monday, Moody’s changed Univision’s outlook to “positive” from “stable,” based on the company’s increased revenue and its ability to pay down some debt. Univision’s management has spent the last three years wrangling carriage fees from pay-TV distributors as well as launching new TV networks, including an English-language channel called Fusion, which is a joint venture with Walt Disney Co.’s ABC.
“They have been doing well,” said Carl Salas, a vice president and senior credit officer for Moody’s. “We looked at their ability to service the debt comfortably and carry out their plans, including a possible IPO.”
The positive rating outlook reflected Moody’s view that Univision should be able to grow its earnings and reduce debt. That would position the company for a potential IPO and allow some of the owners to reduce their stakes, Salas said.
A representative of Univision declined to comment.
The ownership group, which includes Saban Capital Group and private equity firms Providence Equity Partners, Madison Dearborn Partners, Thomas H. Lee Partners and Texas Pacific Group, has spent the last few years considering various exit strategies, including an IPO.
Last summer, Saban tried to spark a bidding war for the Spanish-language media company.
But the price tag that was floated — $20 billion for the entire company — was too steep to entice the potential suitors, CBS Corp. and Time Warner Inc., according to people close to those companies. A hoped-for auction failed to materialize.
Univision’s owners have held their investment longer than initially planned. The group spent $13.7 billion to buy Univision in 2007, just before the Great Recession hit.
Early on, they struggled to increase Univision’s advertising revenue because of the soft economy. They also tangled in court with Televisa of Mexico, an important programming partner.
To make peace with Televisa, which produces the highly popular soap operas called telenovelas that fuel Univision’s prime-time ratings, Univision owners invited Televisa to join their group. Televisa invested $1.2 billion and now has about an 8% stake in Univision.
Televisa has the ability to increase its ownership to about 40%. However, matters have been complicated by U.S. rules that limit foreign ownership of broadcast stations, and Televisa has shown little interest in exiting Univision.
That is another reason Univision’s owners are considering offering only a portion of the company’s shares to the public.
Univision generated $2.9 billion in revenue for the 12-month period that ended Sept. 30. Last summer, the company brought in $174 million in advertising revenue for its broadcasts of the World Cup of soccer. Revenue in 2015 is expected to be down slightly, but 2016 is expected to set a record for the company.
“They have now hit the inflection point in producing meaningful free cash flow,” said Salas of Moody’s.
Univision’s collection of carriage fees from pay-TV companies including industry leader Comcast Corp. have become a predictable source of revenue. Such fees now make up 30% of the company’s television revenue, Salas said.
“They are going to have some of their best margins in the industry — and they have an ideal demographic in their audience,” Salas said. “With the expected political revenue in 2016, everything is moving their way.”
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