Elektra's Monetization of TV Azteca Investment a Potential Credit Pos

11 Aug 2000 10:38 AM

Fitch-NY-August 11, 2000: Fitch positively views Grupo Elektra, S.A. de C.V.'s (Elektra) recent announcement that it intends to monetize its 18.3 percent indirect equity stake in TV Azteca under an executed option agreement with the Salinas family, the indirect controlling shareholder of TV Azteca.

Under the terms of the agreement, Elektra has granted Comunicaciones Avanzadas, S.A. de C.V. (CASA), a holding company majority-owned by the Salinas family, a 12-month option to buy back Elektra's 35.8 percent equity in CASA for $316 million. CASA owns 90.0 percent of Azteca Holdings, which in turn owns 56.7 percent of TV Azteca. The agreement also includes a $15.8 million penalty payment if CASA does not exercise the option.

Exercise of the option and completion of the transaction would positively strengthen the credit quality of Elektra. CASA is expected to fund the transaction on a non-recourse basis to Elektra, both directly and indirectly, and is a key factor in the ultimate level of improvement of Elektra's credit fundamentals. Proceeds from the transaction are expected to be used to reduce Elektra's current debt levels and to help finance the company's store expansion program. Elektra is planning to accelerate the pace of new store openings over the next few years, following a period of moderate growth that focused on remodeling and updating existing new stores.

In 1996, Elektra acquired an indirect equity stake in TV Azteca for $108 million. Although this investment benefited Elektra by providing the company a 10-year below-market rate advertising agreement, the possibility of additional affiliate transactions represented an ongoing rating concern. Fitch believes this risk is diminishing as Elektra continues to take steps to ensure its independence, including the formation of an independent board, the introduction of new corporate governance procedures, and most recently the announcement that it will divest its investment in TV Azteca.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Banks, Corporations, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide.

Contact: Guido A. Chamorro 1-312-368-5473, Chicago or Giovanna Caccialanza 1-212-908-0898, New York.

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