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Rating Action:

Moody's confirms CBS' Baa2 debt ratings; outlook stable

06 Nov 2019

New York, November 06, 2019 -- Moody's Investors Service ("Moody's") confirmed CBS Corporation's (CBS) ratings, including its Baa2 senior unsecured rating and P-2 Commercial Paper rating. The actions conclude the review for downgrade initiated on August 14, 2019. The outlook is stable.

These actions are based upon our expectations that Viacom Inc. (Viacom) and CBS will complete their merger and combine into a single debt issuer. Also, immediately prior to the closing of the merger, CBS intends to merge CBS Operations Inc., a wholly-owned subsidiary of CBS and guarantor of substantially all of CBS' outstanding debt securities, with and into CBS in order to extinguish CBS Operations' guarantee, with the intention that all of the outstanding debt securities of CBS and Viacom will be pari passu and obligations of ViacomCBS Inc. as of the merger closing. The pending merger has been approved by controlling shareholder National Amusements, Inc. and its affiliate, NAI Entertainment Holdings LLC (NAI, B1 stable). The companies expect the merger to close by early December.

The confirmation reflects the benefits of the combination, including more leverage in future distribution carriage negotiations, and a larger pool of television and film content production and ownership which will improve the company's competitive position in the direct-to-consumer television transition. Moody's believes that the company is committed to conservative financial policies. Moody's believes that management will emphasize and prioritize investment to strengthen its competitive position, sustain a strong balance sheet with initial leverage under 3.25x (including Moody's adjustments) and strengthening over time, and that the company will prudently manage shareholder returns within the context of its investment grade credit ratings. Moody's believes that the combined company will sustain its pre-merger strategies for its television future including leaning into both its CBS All Access HL-SVOD (hybrid linear subscription video on demand) service and its Pluto TV AVOD (advertising video on demand) platform. Moody's has some concerns for this strategy - sustaining multiple services (when you also factor in its Showtime HL-SVOD), while the industry appears to be focused on consolidating content into mostly single deep platforms to provide consumers with a stronger value proposition and gain much greater global scale.

Confirmations:

..Issuer: CBS Broadcasting Inc.

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: CBS Corporation

....Senior Unsecured Shelf, Confirmed at (P)Baa2

....Senior Unsecured Revolving Credit Facility, Confirmed at Baa2

....Senior Unsecured Commercial Paper, Confirmed at P-2

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

..Issuer: CBS Corporation (Old)

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa2

Outlook Actions:

..Issuer: CBS Broadcasting Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: CBS Corporation

....Outlook, Changed To Stable From Rating Under Review

..Issuer: CBS Corporation (Old)

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

CBS' Baa2 rating is supported by its leadership position in the television media and advertising industry - as indicated by its sizeable revenue and valuable asset base of large and mostly US market businesses and iconic brands in each of its segments, which will be bolstered by the addition of Viacom's assets. The combined ViacomCBS Inc. will have a larger, more-diverse content offering and international footprint, and in Moody's opinion will become more powerful when competing for and producing content, while wielding more power with traditional and virtual MVPDs in contract renegotiations. The merged company would also be able to offer a richer DTC product. CBS' existing infrastructure in the DTC space, combined with Viacom's media networks and Paramount studio and both companies' existing libraries, as well as international exposure, will provide significant ecosystem and revenue synergies. These revenue synergies will come on top of at least $500 million in cost synergies. ViacomCBS will have pro forma adjusted leverage of about 3.1x (including Moody's adjustments and assumed $500 million in synergies) as of June 30, and 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 its exposure to cyclical advertising spending, the inherent volatility of Viacom'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 pressure facing linear network television in the US, and the restructuring of Viacom's brands. The effects of underinvestment in these brands combined with secular cord cutting trends has resulted in low viewer ratings for the company's individual networks, which has affected both ad revenue and relationships with MVPDs. These issues have historically taken a toll on Viacom, more so than most of its peers, and will be a drag on the combined credit profile. However, under the newer and more experienced leadership team, the turnaround has had good traction so far, though the broader negative secular trends continue to provide headwinds for the company. In addition, Paramount is also in a turnaround mode under stronger leadership and has demonstrated a remarkable improvement so far, aside from the two recent high profile box office disappointments. Additionally, the credit profile continues to reflect the controlling shareholder structure, which Moody's believes limits the board's independence relative to the boards of most other large publicly traded U.S. companies.

The stable outlook reflects our view that year end pro forma 2019 leverage will decline to approach 3x (including Moody's standard adjustments) or less, and we anticipate that free cash flow will largely be used to invest back into the company's business and that the company will adhere to prudent financial policies and manage capital allocation strategies within the context of its investment grade credit ratings. The outlook also assumes that CBS and Viacom will be able to smoothly integrate their operations and achieve its stated cost synergies.

CBS' ratings could be upgraded if the combined company with Viacom sustains debt-to-EBITDA leverage under 2.5x (including Moody's adjustments). Also, greater diversification to less cyclically sensitive revenue streams, such that advertising as a percentage of revenue moves closer to the peer group average of less than 40% is necessary for an upgrade. Ratings could be downgraded if leverage is sustained materially above 3.25x (including Moody's adjustments), or free cash flow (after dividends) to adjusted debt sinks below 10% for a prolonged period of time. In addition, a return to aggressive shareholder friendly initiatives, including high dividend payouts or material-debt financed acquisitions, could have a negative impact on debt ratings.

CBS is a public company with a dual-class ownership structure that gives effective control to Sumner Redstone's National Amusements. However, such governance risk is offset by the company's conservative financial policies. Social risks for CBS 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. CBS' exposure to social risks also stem from technological evolution and demographic change that is altering consumer viewing habits. These trends have and will continue to negatively impact CBS' broadcast network viewership.

The principal methodology used in these ratings was Media Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CBS Corporation ("CBS"), with its headquarters in New York, is among the world's largest media companies with revenues from four business segments: Entertainment (includes CBS Television Network, CBS Television Studios, CBS Studios International, CBS Television Distribution, CBS Interactive and CBS Films), Cable Networks (includes Showtime Networks, CBS Sports Network and SmithsonianNetworks), Publishing (includes Simon & Shuster's consumer book publishing business) and Local Media (CBS Television Stations)

REGULATORY DISCLOSURES

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.

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

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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