MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB+(exp)' rating to Globo Comunicacao e Participacoes S.A.'s (Globo) proposed USD200 million step-up senior notes due 2022.
Fitch currently rates Globo as follows:
--Local currency Issuer Default Rating (IDR) 'BBB+';
--Foreign currency IDR 'BBB+';
--National scale long-term rating 'AAA(bra)';
--USD325 million in Perpetual Notes 'BBB+'.
The Rating Outlook is Stable.
The step-up senior notes will be originated from Globo's USD200 million senior notes issued in 2007 and will not represent any cash inflow to the company. Through a structured transaction, the senior notes issued in 2007 will be purchased, amended and replaced into the market with an expected lower interest rate for the next five years; after the initial five years the outstanding balance of the notes, if any, will accrue interest at a 7.25% rate per year.
Globo will transfer the call option of all of the outstanding senior notes issued in 2007 to Pontis II Ltd. (Pontis II), a Cayman Islands company unrelated to Globo. Pontis II will issue USD207.3 million senior exchangeable notes (SENs) in order to fund this acquisition. Subsequently, the SENs will be mandatorily exchangeable for Globo's USD200 million amended senior notes due 2022.
Globo's ratings reflect its continued strong business profile, as the leading TV network in Brazil, as well as the largest programming provider for Pay TV operators in the country. The company's solid financial and liquidity position are underpinned by positive free cash flow generation and a comfortable debt maturity profile. Factored into Globo's ratings is the correlation between the Brazilian advertising market with domestic economic activity.
Continued Strong Business Profile:
Globo's business strength is supported by its extensive TV stations network in Brazil, through its wholly owned TV stations in Rio de Janeiro, Sao Paulo, Recife, Brasilia and Belo Horizonte and 117 affiliates that jointly cover approximately 99% of Brazilian households. The company's strategy continues to focus on the production of high quality content to align audience choices with advertisers, including the top rated prime time programming. This has resulted in leading audience shares throughout the years and has enabled Globo to maintain strong pricing power. In addition, Globo has developed long-term relationships with major domestic advertisers that have translated into a robust customer base and stable revenue growth.
Attractive Advertising Trends in Brazil:
The advertising industry in Brazil has grown in recent years. Historically, Globo's revenues have been correlated to the country's GDP; nevertheless, in 2009 national GDP declined 0.2%, while Globo's revenues increased over 10%, as TV advertising is oriented towards less volatile sectors, such as retailing, financial services, and consumer products, among others. During 2010, Globo's total revenues grew 24.4% compared to 2009 and in 2011 continued the same trend, growing by 11.9% to BRL11 billion. A slowdown in Brazil's economic activity is expected for the near future given the current global economic outlook. On the other hand, TV broadcasting is in a mature stage and continues to be the most important mass media for advertisers in Brazil, representing a stable share of total advertising budgets of approximately 60%.
Solid Positive Cash Flow Generation:
Globo's operating performance continues to be solid. During 2011, the company registered EBITDA of BRL2.8 billion, representing an increase of 20% compared to 2010. The growth is explained mostly by the dynamics of the domestic economy with higher net revenues. This has resulted in robust credit metrics compared to Globo's industry peers. For the latest 12 months (LTM) ended Dec. 31, 2011, the company's EBITDA coverage of interest expense was 27 times (x) and total debt to EBITDA was 0.4x. During the same period, dividends and capex of approximately BRL1.16 billion were covered by cash flow from operations of BRL1.88 billion; for the year 2011 free cash flow (FCF) generation was BRL718 million. Fitch expects Globo to continue generating positive FCF in the future, as capex and dividend payments are expected to remain relatively stable.
Ample Liquidity and Extended Debt Maturity Profile:
Globo's liquidity is ample and has an extended debt maturity profile. At Dec. 31, 2011, the company had a positive net cash position with BRL5.2 billion of cash and marketable securities and total debt of BRL1.1 billion. Globo's consolidated debt is mainly comprised of USD200 million of senior notes due in 2022, USD54 million of bank loans maturing in 2012 and USD325 million of perpetual notes.
Key Rating Drivers:
Globo's ratings could be pressured downward by extreme negative operational results that could drastically affect the company's cash flow generation and credit metrics over time. Conversely, positive rating actions are tempered by Brazil's country ceiling of 'BBB+' and the industry's inherent risk profile.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' dated Aug. 12, 2011;
--'National Ratings Criteria' dated Jan. 19, 2011.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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