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Announcement:

Moody's says CBS Corp.'s strong second quarter results and trends solidly position the company in the Baa3 rating category

04 Aug 2010

Further absolute debt reduction in combination with EBITDA growth could put upward pressure on the company's credit rating.

New York, August 04, 2010 -- Moody's commented on CBS Corporation's strong second quarter earnings results following on a strong first quarter. We believe that on a run rate basis for 2010, the strong advertising recovery helps position the company well within its Baa3 credit rating. However, the company still remains more leveraged than all of its large diversified media peers. "We believe that our view of the ad recovery is supported by a resurgence in core ad spending across the company's segments, particularly from the auto category but also from growth in spending spread across multiple other sectors, and expected strong political spending -- all of which are indicators of the impressive media sector ad recovery for the remainder of 2010," stated Neil Begley, a Moody's Senior Vice President. Based on the improving trends in the company's operating performance, Moody's expects that CBS will reposition itself more solidly within the Baa rating category over the coming quarters and exhibit credit metrics that are indicative of a strong Baa3 diversified media company.

The across the board top line recovery, cost discipline and impressive free cash flow generation improve the company's financial flexibility, which it may use for reinvestment, acquisitions, shareholder friendly activities, or further debt reduction to reduce financial risk particularly given the continuing challenging economic environment. Given the company's high exposure to cyclical advertising swings and high fixed costs (though slowly improving due to growth in non-advertising related revenues such as healthy growth in retransmission fees, content syndication revenues, and lower costs), Moody's believes that absolute debt reduction combined with organic revenue growth will play a large role in the determination of the company's debt rating looking forward, rather than just debt-to-ebitda leverage improvement coming from a cyclical advertising recovery. Moody's mentioned earlier this year that CBS remains highly exposed to the ad cycle (relative to some of its large diversified media peers) with greater than 60% of revenues being derived from advertising. Moody's believes that over the long-term, the risk remains that debt-to-EBITDA leverage, which currently is about 4.0x (including Moody's standard adjustments) can again rise to the 4.8x range that it hit in 2009, and therefore, without incremental debt reduction, the credit rating will continue to reflect the cyclical risk and remain at the lower end of the "Baa" rating category. While the expected improvement in EBITDA over the intermediate-term increases the company's financial flexibility, cyclical improvement will not likely result in upward rating pressure by itself. As a result, de-leveraging coming from an absolute reduction in debt rather than just cyclical EBITDA expansion, will be necessary for moving to a higher rating category, and the company has taken steps in this direction and has alluded to some further steps in its public comments regarding "de-risking its balance sheet" which we view favorably. "Incremental debt reduction (either in the form of balance sheet debt repayment or underfunded pension liability reduction) of at least $1.5 billion, in addition to about $840 million already repaid this year, could result in upward ratings pressure," stated Begley. However, a return to significant increases in the regular dividend payout would temper any ratings upside potential as it limits financial flexibility unless greater debt reduction occurs.

For more information, please see Moodys.com for more information.

The last rating action was on March 30, 2010 when Moody's assigned a Baa3 rating to CBS's new senior unsecured notes.

The principal methodology used in rating CBS was Moody's Global Diversified Media Industry rating methodology, published in November 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

CBS Corporation with its headquarters in New York is among the world's largest media companies with revenues from five business segments: Entertainment (includes CBS Television Network, CBS Television Studios, CBS Television Distribution, CBS Interactive and CBS Films) (54% of 2009 revenues), Cable Networks (10%), Publishing (6%), Local Broadcasting (18%) and Outdoor (13%). Annual revenues approximate $13.7 billion.

New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Richard J. Lane
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's says CBS Corp.'s strong second quarter results and trends solidly position the company in the Baa3 rating category
No Related Data.
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