Fitch Affirms TV Azteca's IDRs at 'BB-'; Outlook Stable
MONTERREY, Mexico -- May 6, 2013
Fitch Ratings has affirmed TV Azteca, S.A.B. de CV's (TV Azteca) ratings as
--Long-term Issuer Default Rating (IDR) at 'BB-';
--Local currency IDR at 'BB-';
--USD300 million Senior Notes due 2018 at 'BB-'.
The Rating Outlook is Stable.
TV Azteca's ratings reflect its business position as the second largest TV
broadcaster in Mexico with national presence and one of the largest
Spanish-language TV companies in the world. The ratings consider the company's
financial profile and strong cash generation, which in turn have been used in
past years to finance growth, pay dividends, and for capital reductions and
share repurchases. TV Azteca's ratings are limited by the mature stage of the
industry, high competition from traditional and new distribution platforms,
limited revenue diversification base, as well as by the company's debt
structure, with approximately 50% of its total debt secured by 22% of national
advertising revenues, which is senior to all unsecured debt instruments.
KEY RATING FACTORS
TV Azteca's business position reflects its stable market share of around 30%
in the domestic market. Mexico's TV broadcasting market is comprised of two
national networks (Grupo Televisa, S.A.B. and TV Azteca) and smaller regional
and local broadcasters. Television continues to be the most important mass
media in Mexico for advertisers. The company's revenues are supported by its
internally produced content which allows it to align advertisers with specific
Historically the company's growth has followed the national GDP, although in
downturns it has maintained stability given that traditionally, advertisers
with presence in broadcast TV in Mexico are engaged in less cyclical segments
such as consumer goods and services; this has translated into stable cash
flows during economic cycles. During 2012, TV Azteca's revenues grew 3% versus
2011 reflecting TV Azteca's stable market share and economic conditions.
TV Azteca's management strategy is focused on maintain strong profitability
through stable audiences and pricing power, in conjunction with keeping strict
controls on costs and expenses. Operating margins have been pressured recently
as a result of increased content production capabilities for traditional and
new platforms and distribution channels. In addition, during the first quarter
of 2013, revenues were pressured by low government spending and seasonality;
historically the second half of the year is stronger than the first half.
Fitch expects stabilization of operating results through the rest of the year,
with EBITDA margin around 34%-35%.
The ratings consider the exposure to domestic economic activity and increased
regulation going forward. The upcoming telecommunications law in Mexico,
expected to become enforced during this year once the secondary laws are
passed by congress, could have an impact on TV Azteca's results in the medium
term, reflecting increased competition from potential new participants, among
other factors. However, Fitch believes that the company's cash generation will
allow it to maintain a stable financial profile and meet its financial
In recent years internally generated cash has been the company's main source
to finance growth and cash distributions to shareholders. The company's
strategy continues to be focused on the production of robust programming which
requires investment in talent and facilities. For 2013 Fitch expects that TV
Azteca's cash generation will be used to cover capex and other investments
related mostly to exhibition rights (e.g. world cup, local soccer teams and
third parties content), as well as dividend payments of approximately USD25
million per year.
TV Azteca's financial profile is strong and has been stable in recent years.
Total debt to EBITDA for 2012 was 2.6x and net debt to EBITDA 0.8x, similar to
the previous year. Free cash flow generation (FCF; cash from operations -
interest paid - capex - dividends) during 2012 was negative USD12 million and
the company ended the year with a cash balance above USD558 million. For the
LTM at March 2013, gross leverage was 2.6x and net leverage 0.7x. Fitch
expects these ratios to remain stable in 2013.
TV Azteca's liquidity risk is low with total debt as of March 31, 2013 of
MXN10.1 billion, short-term debt of MXN667 million and MXN7.3 billion of cash.
TV Azteca's debt is made up of structured Certificados Bursatiles with an
outstanding balance of MXN5 billion which began amortization in 2011 through
2020, USD300 million in senior notes due in 2018 equivalent to MXN3.6 billion,
and MXP1.5 billion (USD120 million) financing with American Tower Corp.
maturing in 2020 with an option to be extended until 2069. The company's
financial flexibility is limited by its restricted access to debt markets
(i.e. banks and capital markets). The ratings take into consideration the
controlling ownership by the Salinas family and track record of transactions
with related entities.
While liquidity risk is low and the company's debt maturity profile is
adequate, it is important to note that approximately 50% of the company's
total debt as of March 31, 2013 is secured by 22% of national advertising
revenues, which is senior to all debt instruments.
Factors that could lead to a positive rating action include a combination of:
additional profitable business lines contributing to positive cash flow
generation, consistently lower leverage through the cycle, sustained increase
in market share that would lead to higher cash generation allowing the company
to reduce working capital needs.
Negative factors that could affect the company's credit profile are: declining
market share, results and profitability; increased leverage and reduced
liquidity; size, form and rollout of future investments; higher than expected
cash distributions to shareholders.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 08, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
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Alberto Moreno, +52-81-8399-9100
Fitch Mexico, S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
Velia Valdes, +52-81-8399-9100
Sergio Rodriguez, CFA, +52-81-8399-9158
Elizabeth Fogerty, +1 212-908-0526
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