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Rating Action:

Moody's assigns Baa2 rating to ViacomCBS's proposed senior unsecured notes issuance

12 May 2020

New York, May 12, 2020 -- Moody's Investors Service ("Moody's") assigned a Baa2 rating to ViacomCBS Inc.'s (ViacomCBS) proposed senior unsecured notes offering. These notes will be senior unsecured obligations of ViacomCBS and will rank equally with all of ViacomCBS's current and future senior unsecured debt obligations. The company intends to use proceeds from the issuance to tender for outstanding notes maturing over the next several years, as well as general corporate purposes. We anticipate the issuance to be leverage neutral and to improve the company's liquidity over the coming 12 to 24 months. The outlook is stable.

A summary of today's action follows:

Assignments:

..Issuer: ViacomCBS Inc.

....Senior Unsecured Regular Bond/Debenture, Assigned Baa2

RATINGS RATIONALE

ViacomCBS's Baa2 rating is supported by its leadership positions in the television media and film industries - as indicated by its sizeable revenue and its large, diverse and valuable asset base and iconic brands in each of its segments. The company will benefit from revenue and cost synergies as a combined entity which are forecasted to be $750 million over the next few years. We expect the company to use proceeds from asset sales to pay down debt and reach its target debt-to-EBITDA leverage level of around 3.0x (including Moody's adjustments and assumed $750 million in synergies). Moody's believes that ViacomCBS will adhere to conservative financial policies in a manner consistent with its investment grade rating.

Moderating these favorable rating factors, however, are the company's exposure to cyclical advertising spending, the inherent volatility of Paramount's film business, and the significant programming investment required by both its film and media network businesses to deliver the engaging content necessary to support consumer avidity and its distribution and advertising revenues. Also, significantly impacting the company's credit positioning are the risks surrounding the secular transitional pressure facing linear network television and broadcast stations, and the restructuring of Viacom's brands. The effects of underinvestment in these brands years ago combined with current secular cord cutting trends has resulted in low viewer ratings for many of the company's individual networks, which has affected both ad revenue and relationships with MVPDs. Cumulatively however, the company's network ratings are strong, and we believe a concentrated direct-to-consumer streaming strategy with most of the company's brands could be compelling. But we believe more content investment including potential M&A will be essential to compete on a global scale. This view is aligned with management's strategic priorities, but the field is getting more crowded which will make it harder to reach scale and avoid churn without significant content investment.

The stable outlook reflects Moody's view that leverage will improve to around 3.0x (including Moody's standard adjustments) or less. We anticipate that free cash flow will largely be used to invest back into the company's business and reduce indebtedness. We also believe that the company will adhere to prudent financial policies and manage capital allocation strategies within the context of its credit ratings. The outlook also assumes that the company will be able to smoothly integrate their operations and achieve its stated cost synergies as well as revenue synergies which we believe will be between $750 million and $1 billion.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be upgraded if the company sustains debt-to-EBITDA leverage under 2.5x (including Moody's adjustments), and the company successfully transitions its television business into large scale branded streaming platforms.

Ratings could be downgraded if leverage is sustained materially above 3.25x (including Moody's adjustments) after the primary effects of COVID-19 crisis passes; if free cash flow (after dividends) to adjusted debt sinks below 10% for a prolonged period of time; or if the company returns to aggressive shareholder friendly initiatives, including high dividend payouts and share buybacks before the business transition is proven successful. We believe that the industry is in the midst of an investment cycle and therefore, returning significant capital to shareholders for the foreseeable future will be deemed credit negative and could impact financial capacity until the risks pertaining to the strategic transitioning to on demand direct to consumer platforms is proven effective in scale to mitigate the decline in linear television revenues.

Social risks for ViacomCBS can include a data breach event, where intellectual property and other internal types of sensitive records could be subject to legal or reputational issues. However, management monitors its social risks closely, including data protection, and workforce resource planning. ViacomCBS's exposure to social risks also stem from technological evolution and demographic change that is altering consumer viewing habits and advertising trends. These trends have and will continue to negatively impact ViacomCBS's cable and broadcast networks and stations through subscriber losses and through advertising market share losses to more efficient digital advertising. With the recent spread of the coronavirus and subsequent movie theater closures across the country, along with an expected reduction in advertising revenues, we view this as a social risk and expect it to create delays in film releases and revenues until the threat of the spread and economic aftereffects have subsided. We believe the company is committed to conservative financial policies and that management will emphasize and prioritize investment to strengthen its competitive position, sustain a strong balance sheet and to use proceeds from asset sales to pay down debt and reach its target debt-to-EBITDA leverage level of around 3.0x (including Moody's standard adjustments).

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The media sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand, sentiment, and box office success. More specifically, its exposure to economically sensitive advertising revenues and the success of its films in theatres, which are now closed throughout the world to limit the spread of the virus, have left it vulnerable in these unprecedented operating conditions and ViacomCBS remains vulnerable to the outbreak continuing to spread. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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