Substantial free cash flow generation and strong demographic trends supporting growth helped earn Univision Communications' $1.5 billion five-year credit a Baa3 rating from Moody's Investors Service. The rating is also supported by Univision's dominant position in U.S. Spanish language television broadcasting and a valuable station group, noted Glenn Eckert, v.p. senior analyst at Moody's. The company's $500 million in senior unsecured notes also received a Baa3 rating. The debt will be used to finance the acquisition of stations from USA Broadcasting, Raycom Media and Equity Broadcasting Corporation. Administrative agent J.P. Morgan Chase and documentation agent BNP Paribas launched syndication on June 22. Pricing is at LIBOR plus 11/4%.
The powerful growth of Spanish-speaking households throughout the U.S and their continued gains in disposable income will benefit the company, which is well positioned to take advantage of growing advertiser attention to the U.S. Hispanic population. Univision has a near-ubiquitous reach of Spanish language households and a dominant audience share that is more than three times larger than Telemundo and outranks all but the "big four" networks. For these reasons, it is the advertisers' choice for targeting Spanish speaking households, Eckert said.
The rating is constrained, though, by the incurrence of acquisition debt and reliance on targeted advertising expenditures. There are also significant potential execution risks associated with developing a second language network, including cannibalization of existing audiences, obtaining compelling programming outside of existing contracts and maintaining advertisers. The company will significantly increase debt and leverage to finance the proposed transactions. Management's proven ability to deleverage works in the company's favor, though.