Univision Communications is riding a wave of attention thanks to the focus on Latinos in the presidential campaign, but questions about its debt-laden balance sheet may put a damper on its upcoming stock offering.
The private equity firms that won control of the New York-based Spanish-language broadcaster through a leveraged buyout eight years ago may not fully resolve the company's debt problems, even if they do succeed in raising $1 billion from the stock sale. Univision filed for an IPO in July. A date for the offering has yet to be scheduled, but it's expected to happen by year's end.
"This is why I really don't like these leveraged buyouts," said Francis Gaskins, director of IPOdesktop. "When a company's interest payments exceed operating income, how can they ever make money? The answer is: They can't."
Univision is planning this initial public offering at a time when its revenue is declining. Sales fell to $1.32 billion for the first half of 2015 as compared to $1.45 billion in the same period a year earlier. And while the company reported second-quarter operating income of $225 million for the six-month period, interest expenses stood at $281.2 million, with long-term debt totaling $10.4 billion.
In 2007, Univision was acquired by private-equity firms Madison Dearborn Partners, Providence Equity Partners, TPG and Thomas H. Lee Partners for $13.7 billion, including debt, in a deal that was financed by about $10 billion in borrowed money.
Univision is banking on its well-known name and large footprint in the media industry, as well as its crucial role in reaching increasingly politically important Hispanic viewers, to generate investor interest in its IPO. Univision anchor Jorge Ramos has emerged as one of the best-known and influential news commentators in the country. Ramos' face-to-face questioning of Republican frontrunner Donald Trump at an August press conference was closely followed by Univision, and other media outlets.
Univision's KMEX-34 in Los Angeles, featuring Ramos, routinely ranks as the country's highest rated early and late local TV newscast, regardless of language, among adults 18 to 49.
As the largest U.S. Spanish-language broadcaster, Univision operates several 24-hour cable networks and 60 local television stations. It plans to trade under the ticker UVN on the New York Stock Exchange. The IPO is aimed in part at reducing company's debt and making it more manageable.
However, this is a tumultuous time in the IPO market, notes Josef Schuster at Ipox Schuster. He said investors should expect very little momentum at the company's launch. "Don't expect a pop at the opening," he said. Gains, if there are any, will come in the long-term, and Univision won't pay dividends, he said.
To help offset investor concerns about its debt load, the company will have to offer a compelling valuation. Yet Univision is unlikely to receive a valuation at or above two times its 2014 revenue of $2.91 billion, said Schuster, who urged investor caution. Univision declined to comment.
While Univision must grapple with a heavy debt load, it does control some of the most-watched local TV stations in the U.S. It also continues to innovate in a rapidly changing industry, with moves such as its investment in multi-platform media company Fusion, a co-venture between Univision and Disney-ABC (DIS) - Get Report Television Group. Fusion programs are distributed through conventional TV channels and also streamed online to certain cable and satellite subscribers.
Companies coming to market with heavy debt loads are certainly not an anomaly. Albertsons, a Boise, Idaho-based supermarket chain owned by private-equity firm Cerebus Capital Management, recently delayed its planned IPO citing market volatility. Albertsons is reportedly aiming for a pre-Thanksgiving offering date. First Data (FDC) - Get Report , a payment processing company that held the biggest IPO of 2015, also came to market with outsized debt.
For Univision, its stock offering is a bet that the network's high-profile among Latinos and rising importance during this election cycle will help offset misgivings about its heavy debt load.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.