Moody's Investors Service assigned a B1 rating to Hialeah, Fla.-based Telemundo Group Inc.'s new $500 million of senior secured bank facilities, citing the strength of its security interests and guarantees and improved programming performance. Christine Padgett, v.p., senior credit officer at Moody's, said the debt is secured against a valuable asset base, consisting of 10 full-power stations in the U.S. and Puerto Rico. These are a piece of the spectrum which Telemundo has the license to operate, she explained.
The proceeds from the new loan will fund the $239 million acquisition of KWHY, a Los Angeles television station, providing Telemundo with a duopoly presence in Los Angeles, the largest Hispanic market. Although initially leverage will rise and cash interest will diminish following the transaction, the positive demographic trends of the Hispanic population, growing audience share and the company's ability to achieve previously established goals regarding leverage reduction provide a positive outlook.
Substantial changes to Telemundo's programming line-up and management has doubled its Spanish language viewing audience share from 13% during the first half of 1999. Jim McNamara came in as ceo 18 months ago, when the ratings were in low, said Padgett. "The company had previously pursued a policy of adapting the format of successful U.S. shows, such as "Charlie's Angels" and "Starsky & Hutch," and remaking them in a Spanish format," said Padgett, which had not worked. McNamara moved away from this and now the company broadcasts actual Spanish and Latin American shows, rather than importing a foreign genre, she noted. The reinstitution of the telenovela format, a form of soap opera, but with endings, and the use of Latin artists associated with the Sony music labels, has reconnected Telemundo with its audience, leaving it poised to take advantage of the rapidly expanding Hispanic population.
The credit consists of a $150 million term loan "A," a $200 million term loan "B," and a $150 million reducing revolver. Total debt to EBITDA is high at 7.1x leverage and there is the potential for debt-financed acquisitions and a soft advertising environment that may erode Telemundo's cash flow growth.