Univision Communications Inc. Rating Lowered To 'B' On Significant Operational Weakness In 2018; Outlook Stable

  • New York City-based Univision Communications Inc.'s leverage has increased to 8.1x as of Sept. 30, 2018, from 6.7x at 2017 year-end because of revenue declines stemming from the loss of carriage on Dish Network and advertising weakness as well as EBITDA declines due to the step-up in the company's program licensing agreement (PLA) with Televisa, restructuring and impairment charges.
  • S&P Global Ratings lowered its issuer credit rating on Univision to 'B' from 'B+'. We also revised our recovery rating on the senior secured debt to '3' from '2' and lowered the issue-level ratings to 'B' from 'BB-'.
  • The stable outlook reflects our expectation that while leverage is currently above 8x, we expect Univision will reduce leverage to the low- to mid-7x area by the end of 2019 as revenue and EBITDA stabilize and the company uses its free cash flow generation to repay debt.
CHICAGO (S&P Global Ratings) Dec. 7, 2018--S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects Univision's significant 
operating weakness in 2018. We now expect full-year revenue decline of 8%-10%, 
EBITDA decline of 25%-30%, and an increase in leverage to the high-8x area 
from 6.7x in 2017. We expect revenue and EBITDA to continue to decline over 
the next few quarters before stabilizing in the second half of 2019.

Univision is the market leader in Spanish-language TV and radio broadcasting 
in the U.S. This position makes it an important medium for advertisers and 
video service providers trying to reach Spanish language consumers. Its 
low-cost, long-term content deal with Televisa provides Univision with a 
stable pipeline of content contributing to its strong margin profile compared 
to industry peers. These factors and its strong cash flow generation has 
supported our assessment of its business. However, Univision's position has 
somewhat eroded as it has experienced ratings weakness stemming from viewers 
migrating to other Spanish language networks like Telemundo and to streaming 
video providers like Netflix. Ratings weakness has resulted in mid-single 
digit percent advertising revenue declines the past two years, significantly 
underperforming the broader industry. However, Univision has benefitted from 
secular growth in retransmission and subscription revenues, similar to other 
broadcasters, which has offset advertising weakness until the most recent 
quarter. Univision's loss of carriage on Dish will materially affect 
subscription revenue until carriage resumes. We estimate that Dish subscribers 
represent approximately 5%-10% of Univision revenue given Dish's subscriber 
base is approximately 10% of all domestic video subscribers. 

The stable outlook reflects our expectation that while leverage is currently 
above 8x, we expect Univision will reduce leverage to the low- to mid-7x area 
by the end of 2019 as revenue and EBITDA stabilize and the company uses its 
free cash flow generation to repay debt.

We could lower the rating if Univision is unable to stabilize its business in 
2019 resulting in our expectation for leverage to remain above 8x and free 
operating cash flow to debt falling below 3% on a sustained basis. This could 
occur if the company continues to face ratings pressure, loses market share to 
other Spanish-language networks, or is unable to regain a substantial portion 
of the lost revenue from its absence on Dish. 

We could raise the rating if the company can reduce leverage below 6.5x on a 
sustained basis. This could occur if Univision regains full carriage on Dish 
Network. A return of all its networks on Dish would likely result in 
significant revenue, EBITDA, and cash flow growth and a material reduction in 
leverage in the subsequent 18-24 months].