MOODY'S UPGRADES RATINGS OF CBS CORP. AND CBS RADIO DEBT; SENIOR UNSECURED TO Baa3
Moody's Investors Service has upgraded its ratings on senior unsecured debt of CBS Corp. (formerly Westinghouse Electric Corporation) and CBS Broadcasting Inc. from Ba1 to Baa3 and CBS Corp.'s short term rating from Not Prime to Prime-3, and has raised the ratings on debt of CBS Radio (formerly American Radio Systems) from Ba2 to Baa3 for senior unsecured obligations. The upgrade of the CBS Corp. debt reflects the significant improvement in its financial structure following the IPO of 17% of Infinity Broadcasting Corp. for total proceeds of $2.87 billion, the strong performance of its television station group and the flexibility provided by its ownership of Infinity. However, the rating also considers the existence of significant employee benefit obligations and legacy liabilities from divested business, concerns about the TV network's ability to generate cash and its sizable share repurchase authorization. The upgrade of the CBS Radio debt reflects its status as a wholly-owned subsidiary of Infinity, which operates a superior group of radio stations and will be a strong generator of free cash flow. The rating on Infinity's senior obligations would also be considered investment grade.
Ratings upgraded are:
CBS Corp. and CBS Broadcasting Corp.
Senior Unsecured Debt from Ba1 to Baa3
Senior shelf from (P)Ba1 to (P)Baa3
Short term rating from Not Prime to Prime-3
CBS Radio (formerly American Radio Systems)
Senior Unsecured Debt to Baa3 from Ba2
Senior Subordinated Debt to Ba2 from Ba3 and B1
The outlook for all of these ratings is stable.
CBS Corp. has effectively completed the divestiture of the Westinghouse industrial businesses and used the proceeds to significantly reduce it's debt burden. In addition, the company eliminated its dividend pay out earlier this year. CBS owns a group of 14 TV stations, the CBS Television Network and two cable networks, in addition to its majority interest in Infinity. While the station group and cable operations have performed well, the network has been unprofitable, as ratings have lagged while program costs remained elevated. While ratings performance in the current season have been favorable compared with the other major broadcast networks and the network has taken steps to reduce its programming costs, it remains weakly positioned with the key 18-49 age group. The 8 year NFL contract represents a significant claim on future cash generation and network TV continues to lose viewership to a growing, albeit fragmented, array of pay TV products. However, it will be difficult to track network performance specifically, as CBS will no longer break out sector performance within the television business, because it views the operations of the network and owned and operated stations as being highly integrated.
Infinity will use the proceeds for the IPO to repay a $2.5 billion note to CBS representing a dividend declared prior to the IPO. We expect CBS to use the proceeds to reduce its debt. Despite the lower level of debt, CBS's access the significant cash generation of Infinity, which will represent well over half of the consolidated total, will be reduced on an ongoing basis, since Infinity would need to service its own debt and distribute a portion of any dividend to public shareholders. While nominal leverage at the parent company will be greatly reduced, CBS has significant obligations for retiree benefits, environmental matters and other legacy costs related to its divested industrial businesses. The tax sharing arrangement with Infinity and CBS' significant NOLs should provide funding to further reduce financial claims. Moody's expects CBS to manage its $2 billion share repurchase authorization in a prudent manner which will not significantly increase debt.
Infinity consists of all the radio stations and outdoor advertising businesses formerly owned by CBS. The station group is extremely well positioned, with 9 of the nation's 16 largest stations by revenue and a concentration in top 50 markets. Infinity will have very little debt at inception, but its rating level is constrained by our expectation that acquisitions and future share repurchases will result in a much higher degree of leverage on a sustained basis, as well as its significant management and ownership ties with CBS. While Infinity will be aggressive in seeking opportunities in both the radio and outdoor advertising markets, it possesses a strong free cash generation capacity, which permits the rapid reduction of debt. EBITDA is expected to approach $1 billion in 1999 with limited reinvestment requirements. Infinity management has indicated that Debt/EBITDA of 5 times would be appropriate leverage, which could support an investment grade rating given the quality of the station portfolio.
CBS Corp., headquartered in New York City, owns and operates the CBS television network, 14 television stations and two cable networks and owns 83% of Infinity Broadcasting Corp. Infinity, also headquartered in New York City, owns and operated a group of 161 radio stations and an outdoor advertising business.
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