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Rating Action:

Moody's downgrades CME to B3; CET21's secured notes unchanged at Ba3

01 Mar 2011

London, 01 March 2011 -- Moody's today downgraded the corporate family rating (CFR) of Central European Media Enterprises Ltd ("CME") to B3 from B2 and its EUR148 million senior notes due 2014 to Caa1 from B3. The rating on the EUR170 million senior secured notes due 2017 issued by CET 21 spol. s.r.o. ("CET21") is unchanged at Ba3. The outlook on CME's ratings is stable.

RATINGS RATIONALE

The downgrade to B3 reflects (i) CME's high financial leverage of over 10.0x net adjusted debt to EBITDA as of December 2010; (ii) its negative free cash flow profile; and (ii) Moody's view that meaningful de-leveraging remains largely dependent on a still fragile recovery in Central and Eastern European advertising markets. In addition, Moody's understands a return to cash flow breakeven for the group may imply the need for CME to successfully effect reductions in capital expenditures, working capital and the rescheduling of programming commitments over the course of 2011, which in Moody's view entail a degree of execution risk.

Moody's notes that in 2010 the TV advertising spend in CME's markets continued to decline at a quarterly average of 5%, hence at a slower pace than in 2009. CME showed a 6% decline in revenues and a 16% decline in EBITDA in the period, when excluding the contribution of bTV Bulgaria, acquired in April 2010. Whilst a recovery in private consumption and advertising markets is expected for 2011, Moody's cautions that the pace of that recovery remains uncertain at this stage.

The B3 corporate family rating continues to recognise (i) the strong competitive positions that CME enjoys in its markets - ranging from 40% to 78% market share; and (ii) CME's improved business risk profile following the disposal of Ukraine operations and the acquisition of bTV in Bulgaria, with an expectations of positive EBITDA contribution bTV in 2011.

Moody's notes that following the refinancing undertaken in October 2010 by way of issuance of the EUR170 million senior secured notes at CET21 and the recent completion of a private exchange for USD206 million of its outstanding convertible notes due 2013, the next debt maturities are coming due in 2013, in the amount of USD234 million.

The Ba3 rating on the EUR170 million senior secured notes due 2017 issued by CET21 remain unchanged as Moody's believes the notes continue to benefit from (i) priority ranking ahead of a significant amount of senior notes issued by CME; and (ii) from strong collateral.

The stable outlook reflects Moody's expectations that CME will maintain its strong market positions and that CME's markets are showing signs of a bottoming out.

A meaningful loss in market position or a failure to de-leverage towards 7.0x net adjusted debt to EBITDA by the end of 2011 could put pressure on CME's ratings.

A strong recovery such that leverage falls well below 7.0x on a sustainable basis, could exert upward pressure on CME's ratings.

The principal methodology used in rating Central European Media Enterprises Ltd ("CME") was the Global Broadcast Industry rating methodology published in June 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

CME, a Bermuda-incorporated company, is the indirect parent company of CET Group, of which it owns 100%. CME is a vertically integrated media company with networks and content production units in six Central and Eastern European countries. Launched in 1994, CME now operates 23 channels. For the year ending 31 December 2010, CME generated net revenues of USD737 million and OIBDA of USD107 million.

The CET Group is an entertainment and media company that operates broadcasting, content and new media businesses in the Czech Republic and in Slovakia. The CET Group's main television channels include TV NOVA (Czech Republic) and TV MARKIZA (Slovak Republic), which are market leaders based on their all-day and prime-time audience shares since 1994 and 1996, respectively. During the year ending 31 December 2009, TV NOVA and TV MARKIZA had prime-time audience shares of 47% and 33%, respectively. Over the same period, the CET Group generated net revenues of USD378 million and OIBDA of USD142 million; and in the six months ending 30 June 2010, the company generated net revenues of USD170 million and OIBDA of USD53 million.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

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London
Alexis Foret
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades CME to B3; CET21's secured notes unchanged at Ba3
No Related Data.
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