Restructuring Nightmare Drags TV Azteca: Mexico Fixed Income

(Bloomberg) -- Mexican broadcaster TV Azteca SAB de CV is struggling to convince investors it will emerge stronger after restructuring its debt.

The company’s $400 million in bonds maturing in 2024 are the worst performers in Mexico this month, down 17% to 45 cents on the dollar, as it said it would skip a coupon payment and restructure its obligations. Even with a better debt profile, analysts from Lucror Analytics and Oppenheimer & Co. said the firm is still in trouble.

The broadcaster’s advertising sales, which account for 91% of its revenues, tumbled as the pandemic halted special events like sports matches in Mexico. Now, the firm faces a bruising battle with bondholders and a tough financial outlook regardless of the outcome, according to analysts.

“The process already started on a negative note for bondholders as the company chose to prepay the local debenture and miss the coupon payment on the bond, basically signaling that the bond would be treated as subordinated to other debt,” said Omar Zeolla, an analyst at Oppenheimer in New York. Bondholders “will likely receive a new, unsecured bond with a deep haircut.”

Zeolla said holders of the 2024 bonds can expect a recovery value between 30 and 50 cents, and that the higher end of those estimates would only happen if the company can improve earnings.

TV Azteca posted $113 million in adjusted third quarter revenue, down from $150 million in the third quarter of 2019.

Fitch Ratings, which downgraded the bonds to C from B, four notches further into junk, expects a further contraction in the fourth quarter and says revenues will likely remain weak in 2021.

A TV Azteca spokesperson did not respond to messages requesting comment.

The company remains heavily over-leveraged, said Sebastian Hofmeister, a strategist at Lucror Analytics in emailed comments. The company “will presumably seek a haircut on its 2024 notes, considering the prospects for a slow recovery – at best – this year.”

Mexican corporate debt dropped this week, joining losses in both peso-denominated and dollar-denominated sovereign debt. The nation’s swap rate curve, meantime, bear-steepened over the past days, with the short end climbing just a few basis points, while the back end soared almost 30 basis points. That helped send the two-year over ten-year swap rate spread above 165 basis points, the highest since 2016.

Next week, investors will turn their eyes to bi-weekly inflation figures that are likely to confirm prices are moderately accelerating. While higher inflation -- which is nearing the central bank’s 4% upper limit -- didn’t stop policy makers from voting unanimously for a rate cut last week, persistently high inflation could limit Banxico’s easing cycle.

Final fourth-quarter gross domestic product data and January’s unemployment figures will also be released.

By Justin Villamil and George Lei