Bondholders Flee as Billionaire Salinas Taps Son for Turnaround

  • TV Azteca's debt posts biggest loss among Mexican bonds
  • Broadcaster appointed Benjamin Salinas CEO on Oct. 1

To revive the fortunes of his embattled television broadcaster, Mexico billionaire Ricardo Salinas last month appointed his 32-year-old son chief executive officer of TV Azteca SAB. Bond investors aren’t waiting around to see if he’ll succeed.

The company’s $500 million of notes due in 2020 have lost 16 percent this month alone and touched a record low of 64.75 cents on the dollar on Monday. The slump is the biggest in Mexico and compares with an average loss of 0.4 percent in emerging markets.

Benjamin Salinas is taking the reins at TV Azteca at a time when the company is reeling from a plunge in advertising revenue as pay-television services dominated by Grupo Televisa SAB, the world’s largest Spanish-language broadcaster, and online providers such as Netflix Inc. lure away viewers. On Nov. 5, Fitch Ratings slashed the rating on the company’s bonds to four levels below investment grade, citing the 49 percent year-on-year plummet in TV Azteca’s third-quarter profit and surge in leverage.

“They’re just not good enough for the competition,” said Johannes Wagner, a money manager at GAM in London who is selling the remaining Azteca bonds he holds. “It’s not like they’re going to go bust in the next couple of years, but I don’t see things improving a lot.”

TV Azteca didn’t respond to an e-mailed request for comment on the performance of its bonds.

The Mexico-based company announced the appointment of Salinas’s son on Oct. 1. Shares of TV Azteca have since fallen 5.9 percent, extending their decline in 2015 to 57 percent. Ricardo Salinas has now lost 39 percent of his net worth, or $4 billion, so far this year.

The producer of soap operas, news and reality shows said its earnings fell year-on-year because the third quarter of 2014 included soccer World Cup games, which boosted sales. At the same time, the weakness of the Mexican peso pushed up costs. About a quarter of the company’s production costs are in dollars, according to Fitch. The peso fell 0.2 percent to 16.7551 per U.S. dollar as of 7:17 a.m. in Mexico City, extending its decline since June 30 to 6 percent.

TV Azteca’s bondholders have probably seen the worst of the selloff, said Claudio Robertson, who helps manage $2 billion of assets at Investment Placement Group in San Diego. He owns the broadcaster’s 2018 bonds, which yield a record 19 percent.

Investments in Colombia and Peru, where TV Azteca is installing fiber-optic networks, will start to pay off and the bonds will find more support in the new year as demand for riskier assets rebounds, according to Robertson.

“With 20 percent yields for the second-largest TV network in Mexico, I like them even more than I did before,” Robertson said.

Still, TV Azteca will struggle to trim leverage as advertising revenue drops, according to Fitch analyst Alvin Lim.

TV Azteca’s ratio of net debt to earnings before interest, taxes, depreciation and amortization rose to 5.13 times in the third quarter, the highest since at least 2007.

“Any material recovery in TV Azteca’s financial profile, to a level that is in line with its solid historical levels, would prove challenging given the recent weak advertisement industry trend in Mexico,” Lim said in the Nov. 5 report.

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