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Univision, the Spanish-language media company based in California, kicked off the auction of its music publishing division last week, according to sources familiar with the situation. The company disclosed in a regulatory filing in February that it would sell the unit and its non-core radio stations.
Management sent out books for the music publishing business last week and several strategic players are interested, according to three sources familiar with the situation. Credit Suisse and Allen & Co were hired for the sale.
Univision loans could trade higher after the sale, since proceeds must be used to pay down debt, said two loan investors. According to the company’s credit agreement, management must turn over proceeds to lenders within 10 days of a sale’s completion.
Univision’s credit facility includes 750m in revolving credit priced at Libor+ 225bps, USD 500m in second lien loans priced at Libor+ 250bps and a USD 7bn first lien term loan priced at Libor+ 225bps. The revolver and first lien mature in 2014, while the second lien matures in 2009.
The second lien loans initially traded at 99.7/100.15 in June, and is currently quoted at 98.35/99.62, according to Markit. The first lien loans initially traded at 99.16/99.63 and are now quoted at 93.8/94.5. Both loan prices started to drop 6 July. Indicative levels on the second far exceed those on the first because it is particularly illiquid and has not traded since the recent selloff began, said a buyside source.
Lenders in the deal are Deutsche Bank, Credit Suisse, Lehman Brothers, Bank of America, RBS, and Wachovia.
The loans traded off significantly in part due to the highly aggressive structure of the financing its sponsor consortium – TPG, Providence, Madison Dearborn Partners, Thomas H Lee Partners, Saban Capital – used to fund their acquisition in February. The deal left Univision levered 10x through its senior debt and just over 12x through its entire capital structure using the USD 848m of TTM EBITDA and USD 10bn of debt reported as of 31 March.
But after accounting for one-time charge add-backs, EBITDA drops to USD 815m, boosting total leverage to 12.3x, said one buysider. Standard & Poor’s uses EBITDA of 833m to calculate Univision’s leverage because the rating agency excludes cost savings and management fees that are included in the company’s EBITDA.
Though most highly levered covenant-lite deals have traded off in the recent market turmoil, many buysiders still consider Univision among the higher quality covenant-lite deals. It is a leading player in the growing Spanish-language television market, with a high growth rate and good demographics, specified one of the buysiders.
As in many buyouts inked over the last year, Univision’s sponsors paid a relatively high multiple for the unit, said a buysider. The acquirers paid about 16x EBITDA, while one of the company’s top competitors, Entravision, traded at around 14x EBITDA at the time, he said. “I don’t think they overpaid at the time, but historically that is a high multiple,” he said.
The planned assets sales play a key role in management’s plans to bring leverage to safer levels. Sony/ATV, a division of Sony led by former EMI CEO Martin Bandier, Universal Music Group, EMI and Warner Music Group are bidding for the assets, according to two of the sources. Universal and Sony/ATV appear to be more interested than EMI and Warner, as EMI is in the process of being acquired and Warner is looking at other acquisitions, one of the sources said.
Bids for the music assets fall between USD 350 and USD 400m, according to the sources. That range translates to at least 20x EBITDA given the unit’s USD 20m of EBITDA, another source added. A second industry source also said Univision’s music assets could be worth up to 20x EBITDA.
Univision’s SEC filings indicate a USD 500m sale price for both the music publishing and radio assets. If Univision auctioned the divisions off within the anticipated range, total leverage would be reduced to 11.6x from 12x and senior debt would drop to 9.7x from 10.3x, according to the loan investor. An S&P analyst estimated that the asset sales could cut total leverage to 11.4x and senior leverage to 9.6x.
Univision’s music group accounted for approximately 7% of net company revenue in 2006. The company generated approximately USD 2.17bn in net revenue in 2006. Univision also announced plans to sell some of its 69 radio stations, which are expected to sell for approximately 13x-15x EBTIDA.
Thomas H Lee Partners and TPG declined comment. Madison Dearborn Partners and Saban Capital did not return calls.
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