Fitch Expects to Downgrade Univision IDR to 'B' on Merger Completion.

NEW YORK -- Fitch expects to downgrade the Issuer Default Rating (IDR) for Univision Communications Inc's (Univision) to 'B' from 'BB' and expects to rate the proposed financings as follows:

--$750 million revolving senior secured credit facility due 2014 'B+/RR3';

--$7 billion senior secured term loans due 2014 'B+/RR3';

--$500 million second lien term loan due 2009 'B-/RR5';

--$1.5 billion senior unsecured notes due 2015 'CCC+/RR6'.

The expected ratings actions reflect material increases in the company's debt post closing of the $14 billion merger agreement with a private equity group that includes Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, Thomas H. Lee Partners and Saban Capital Group.

Fitch expects to downgrade the ratings of the approximately $950 million of existing outstanding notes to 'B+/RR3' from 'BB'. Fitch expects the 3.5% notes due 2007 and the 3.875% notes due 2008 to be paid down utilizing a $450 million committed delay-draw bank facility that, per the company, is intended to be used to refinance such notes. In addition, the company expects to divest certain non-core music and radio assets, and the proceeds will be well in excess of the amount required to pay down the $500 million second lien term loan.

The assignment of these ratings is pending closing and review of the final transaction documentation. Fitch also expects that the Negative Rating Watch will be resolved and the Outlook will then be Stable.

Concerns include Fitch's expectations for weak pro forma metrics over the intermediate term, event risk related to the company's on-going disputes with content provider Grupo Televisa S.A. (rated 'BBB' Stable Outlook by Fitch), and decreased operating and financial flexibility as a result of the transaction. The rating is supported by the company's strong market position in U.S. Spanish-language television, favorable demographic trends of target Spanish-language audience, and Fitch's expectations for continued strong operating performance over the intermediate term. The expected Stable Outlook is based on the company's stable operating performance over the past few years and liquidity that will include $750 million of revolver availability, no principal amortization on the term loans for the first three years, and a Paid-In-Kind (PIK) interest option on the company's $1.5 billion senior note offering.

Fitch estimates interest coverage in the 1.5x - 2x range (depending on the company's decision to use its PIK option) over the intermediate term with leverage approximating 12x at the time of the closing. Assuming proceeds and FCF is used for debt repayment, Fitch expects leverage to improve to the 8x range by 2009 from asset sales and continued strong operating performance.

The expected ratings also incorporate event risk related to the company's on-going disputes with content provider Grupo Televisa who last year claimed a material breach by Univision of the Programming License Agreement (PLA). The company receives content for approximately 40% of its broadcast hours from Televisa through the PLA that extends through 2017. Since June 2005, the two companies have filed several lawsuits and counter-claims including Televisa's claim of a material breach of the PLA by Univision that was filed February 2006. While the outcome of these claims are uncertain, Fitch believes the relationship between these entities has clearly been strained and the outcome of this dispute increases event risk and re-financing risk for lenders and is a negative rating factor despite all currently contemplated debt offerings maturing prior to the 2017 PLA expiration.

Fitch expects the company to continue its strong operating performance with high-single digit revenue growth very likely over the intermediate term. Due to cost cuts over the last two years, Fitch believes the company's operating leverage has improved and should result in mid-double digit EBITDA growth. The company's audience reach has typically not resulted in a commensurate share of advertising revenue for the company and while Fitch does not believe the entire shortfall will be materially bridged over the intermediate term, the recent inclusion into the Nielsen Ratings Index and the upcoming elimination of the Hispanic-only Index should benefit the company and support our growth expectations.

The recovery ratings and notching reflect Fitch's recovery expectations under a distressed scenario. Univision's recovery ratings reflect Fitch's expectation that the enterprise value of the company, and hence, recovery rates for its creditors, will be maximized in a restructuring scenario (going concern), rather than a liquidation. The 'B+' rating for the secured facilities (including the existing outstanding senior notes) reflects Fitch's expectations for 51%-70% recovery under a bankruptcy scenario. The 'B-' rating on the second lien term loan reflects Fitch's expectations of 11%-30% recovery under a bankruptcy scenario while the 'CCC+' rating on the company's senior unsecured note offering reflects Fitch's expectations for de minimis recovery prospects due to its position in the capital structure.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.