CETV 3.5% converts analysis 11/2010

November 2010

I like the CETV 3.5% converts due 3/15/13 trading at about 89 for a 9% yield to maturity. There is s a good chance that the company will try to pre-fund the maturity of this convert so the overhang on the stock is lifted.

I spoke to Romana Wyllie, VP corp communications, about the company. They are looking to refinance the convert issue due 3/15/2013 prior to maturity and possibly in the next few months. The converts are the first maturity but current cash is not enough to take out the issue so CETV would have to raise new money. The company expected to be FCF break-even in 2011.

CETV Analysis

Cash = $302m

Subsidiary Debt

CZK 300m facility = $16.6m available; 0 drawn

CZK 1.5B 5.25% credit facility ($85.4m) = undrawn, available with another $54m unsecured bond repurchase

CET 21 €170m 9% senior secured = $237m

Holdco debt (all pari passu)

$475m 3.5% converts 3/15/13= $440m

€207m floaters 5/15/14 = $207m

€440m 11.625% 9/15/16 = $607m

Total debt = $1.49B

Market cap = $1.5B

Net leverage = 11x (estimated 5.3x by end 2011)

CETV operates “free to air” TV broadcast stations and owns content in central and eastern Europe including Czech Republic, Romania, Slovak Republic, Slovenia, Croatia, and Bulgaria. In January 2010, CETV sold its Ukraine operations for $400m. In April 2010, CETV bought a Bulgarian channel from News Corp for $400m. CETV owns the leading TV station in all of its markets except Croatia where it is number 2.

  Sales EBITDA 2009 Market share Country CDS
Czech Republic 39% $128m 42% 80
Romania 24% $38.5m 31% 280
Slovakia 13% $13.9m 36% 75
Slovenia 9% $17.8m 47% 70
Croatia 8% $0.2m 27% 220
Bulgaria 7% -$44.8m 46% 220

The company’s revenues and EBITDA is cyclical due to its reliance on advertising. Quarterly LTM EBITDA peaked at $349m in 2Q 2008 and troughed at $61m in 1Q 2010. As of 3Q 2010, it was $88m. 2010 was a tough year for the company due to negative GDP growth in half of its markets (Romania, Croatia and Bulgaria), however, all of its markets are expected to grow in 2011 at an average of about 2.5%.

Bank of America forecasts EBITDA to be $202m in 2011 and FCF to be $28m.

CETV has two share classes: 56.9m Class A (one vote per share) and 7.5m Class B (10 votes per share). Time Warner is the largest shareholder with a 30% stake. Ronald Lauder owns a 5% stake; 68% of voting stake.

The TV stations have asset value. The Ukrainian unit was sold for over $300m in early 2010 despite having negative EBITDA.

In October 2010, CETV sold €170m 9% secured notes due 11/1/17. Proceeds were used to repay $160m credit line and repurchase 34.8m converts at 88.25 and €2m floaters at 81.75, €6m of the 11.625 at 102.5. CETV also entered into a new CZK1.5B ($85.4m) credit facility that requires the company to repurchase an aggregate of $100m unsecured bonds.

CETV depends on selling advertising on its channels with about 70% sold forward 1 year. Currently, Czech Republic and Slovenia are seeing positive trends while Romania and Bulgaria are struggling. Bulgaria was -$44.8m ebitda in 2009 but should be positive in Q4 2010, helped by the acquisition.

CETV is expected to generate about $185m EBITDA in 2011. Cap ex should be about $50m. The company’s costs are local content which are more variable and acquired studio content under 2-3 year contracts that are not as variable.


The convertible bonds do not have the major financial covenants contained in the non-convertible bonds. However, the convert indenture has a restriction on liens. The non-converts have incurrence covenants but not maintenance covenants. Incurrence covenants prevent a company from taking any action but do not require a company to maintain some minimum ratio to avoid default.

Feb 22, 2001

CETV has completed the privately negotiated exchange of a $206,252,000 aggregate principal amount of its 3.50% senior convertible notes due 2013 for a $ 206,252,000 aggregate principal amount of 5.0% senior convertible notes due 2015 and cash consideration as well as accrued interest on the 2013 notes of approximately $ 30.2M.
• New notes will bear interest at 5.0% per annum and will mature on 15-Nov, 2015
• New notes will be convertible into shares of Class A common stock upon the occurrence of certain specified events based on an initial conversion rate of 20 shares of CME’s Class A common stock per $1,000 principal amount of notes (which is equivalent to an initial conversion price of $50 per share of CME’s Class A common stock)
• New notes will be jointly and severally guaranteed on a senior basis by two of CME’s wholly-owned subsidiaries
• New notes will be secured by a security interest in shares of these two subsidiary guarantors

June 24, 2011

Central European Media Enterprises announces exchange of senior convertible notes due 2013 for senior convertible notes due 2015 ($19.76)
• Compnay announces an agreement to repurchase, in privately negotiated transactions, $52.3M aggregate principal amount of its 3.50% senior convertible notes due 2013 (the “2013 notes”). In exchange for their 2013 notes, holders will receive $52.3M aggregate principal amount of 5.0% senior convertible notes due 2015 (the “2015 notes”) and $4.6M in cash, including a net interest payment in respect of accrued interest on the 2013 notes and the 2015 notes.
• Company initially issued $206.3 million aggregate principal amount of 2015 notes 18-Feb. The 2015 notes pay interest semi-annually at 5.0% per annum, mature 15-Nov-2015, and have an initial conversion price of $50/share.


This trade performed well, as CETV pushed out $260m of the 3.5% converts to 2015. There are now only $130m of the converts remaining which is very manageable for the company. The 3.5% converts traded up to 96 after the announcement of the first exchange for a three month return of about 9%.

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