Viacom Hangs on to Blue-Chip Credit Rating, at Least for Now

(Bloomberg) -- Viacom Inc., hobbled by more than $12 billion in debt and searching for a new CEO, is hanging onto its investment-grade credit rating at Moody’s Investors Service and S&P Global Ratings even as some of its bonds trade like junk.

While Moody’s on Thursday cut the media company’s ranking, it left it just one step away from junk. S&P, which had cut Viacom to an equivalent level last year, is maintaining its negative outlook. Fitch Ratings hasn’t weighed in yet.

Viacom, the owner of Nickelodeon and Comedy Central, is reeling from a legal battle for control of the company that led to a boardroom coup and the ouster of top management. The New York-based company on Wednesday said interim Chief Executive Officer Tom Dooley is leaving, cut its dividend in half, slashed its profit forecast and outlined plans to raise cash. Viacom has $1.4 billion in debt maturing in the next year.

Viacom needs to “show material traction in the performance of its programming and advertising revenues” or face another downgrade, Moody’s said in the statement.

The company has battled falling viewership and advertising sales at networks including Comedy Central, BET and Spike as its youth-oriented audience has turned to popular social media for entertainment. Viacom has also suffered continued losses at its Paramount Pictures film division. On Wednesday, the company said it will take a $115 million write-off on a feature film the studio hasn’t even released.

CBS Course

Some investors and analysts have suggested the company’s best course is to recombine with CBS Corp. The two companies, controlled by billionaire Sumner Redstone and his daughter Shari, were split in 2006. While Viacom’s shares have fallen 55 percent over the past two years as its business eroded, CBS has fared better, down 8.5 percent in a tough climate for media stocks.

Viacom’s profit this quarter will be 65 cents to 70 cents a share, far below analysts’ estimates as a result of the movie write-off. Analysts also forecast an 11 percent drop in revenue to $3.36 billion, a sign Viacom’s underlying business remains weak.

The company said in a statement that it would return to the debt markets “shortly” to “improve liquidity and financial flexibility,” without specifying when it was planning the sale and whether it would sell bonds, loans or a combination of the securities. Viacom last sold notes in 2014, according to data compiled by Bloomberg.

Bond Prices

Viacom’s $1.5 billion of 4.375 percent coupon bonds due in 2043 rose 1.39 cents on the dollar to 85.78 cents following the news. They have dropped almost 6 cents this month according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority, and carry an effective yield of 5.4 percent. That’s above the average yield of bonds rated in the BB tier, according to Bank of America Merrill Lynch index data.

Viacom Hangs on to Blue-Chip Credit Rating, at Least for Now

The cost to protect against losses of Viacom bonds rose more than 30 percent in September, to 141 basis points on Thursday from 108 basis points at the beginning of the month, according to prices from data provider CMA.

S&P Global Ratings, in a statement, maintained its equivalent BBB- grade on the company although it called the company’s plans to sell bonds “a negative factor.”

The cut in the quarterly dividend to 20 cents a share will save more than $300 million annually. Mario Gabelli, the second-largest holder of Viacom’s voting stock, suggested Wednesday the company reunite with CBS or sell assets such as the Epix premium cable TV channel or assets in India.