Mexican Broadcaster’s Bond Surge Catches Analysts by Surprise

Published 3 September 2021 12:00:00.2 GMT

(Bloomberg) -- Bond traders are growing in confidence about just how much they might be able to salvage from the wreckage of debt issued by Mexico’s second-biggest broadcaster.

While negotiations over the restructuring of TV Azteca SAB’s bonds are ongoing, the value of its 2024 notes have rebounded to almost 60 cents on the dollar. That’s nearly 50% higher than their pandemic low and above what at least two analysts had envisaged. Lucror Analytics’ Sebastian Hofmeister said any deal would be unlikely to deliver over 50 cents on the dollar, while Omar Zeolla, a strategist at Oppenheimer, put the figure at no more than 55 cents.

What’s more dramatic is that around half of the recovery has come in just the past month, with the bonds posting a tidy return of around 20% in that period. Among dollar bonds issued by Mexican borrowers, that’s second only to distressed lender Alpha Holding SA.

“This is mostly driven by the recent earnings recovery and pick up in domestic advertising that was also apparent in Televisa’s Q2 results,” said Hofmeister in emailed comments. “We still expect a significant haircut on the bonds.”

Hofmeister is sticking with his forecast for the recovery value as the restructuring talks continue.

Economic Rebound

TV Azteca announced its intention to restructure the debt in February, sending the bonds to a low of just 42 cents. Now, the company has found itself in a much stronger financial position as Mexico emerges from the worst economic contraction in nearly a century.

Key for the company was its domestic publicity revenue, which leaped 66% in the second quarter from the previous year, helping to drive Ebitda to 644 million pesos ($32 million) from just 10 million pesos. 

“Their latest results were positive,” Oppenheimer’s Zeolla said from New York. Zeolla had estimated a recovery value of 35 to 55 cents and said he’s inclined to stick with that call despite the fact the bonds are already trading above the upper band.

Elsewhere in the market this week, Mexican corporate bonds mostly advanced, joining slight gains in peso-denominated sovereign bonds. Mexico’s dollar-denominated government debt dropped.

TIIE swap rates moved higher this week, up between two and seven basis points across the curve despite peso advances of more than 1%. The market now prices between 50 and 60 basis-point hikes in the rest of 2021 with three central bank meetings left.

August inflation data will be released next week and the price prints will be closely scrutinized by investors to determine whether Banxico will only deliver 50 basis points of tightening this year or go with 75 basis points, which would mean hikes at every meeting before year-end.

Apart from inflation data, Mexico will also report gross fixed investment figures for June, International reserves, and July industrial production.

By Justin Villamil

--With assistance from George Lei