Moody’s applauds CBS Corporation credit facility


Last week’s deal struck by CBS Corporation for a new $2 billion credit facility has erased any lingering concerns about the company’s near-term liquidity, says Moody’s Investors Service. The credit rating firm has assigned a Baa3 rating to the new revolver and hailed the company’s Q3 results as pointing to a recovery in the national ad market.

Here is the upbeat statement that Moody’s issued on Friday:

“Moody’s Investors Service assigned a Baa3 rating to CBS Corporation’s (“CBS”) new $2 billion revolving credit facility due 2012. The new revolver is a senior unsecured obligation of CBS, the ultimate parent, and will rank equally with all other existing and future unsecured debt of the company.

According to Neil Begley, Senior Vice President, ‘refinancing of the credit facility enhances CBS’s liquidity and alleviates any residual concern surrounding the company’s near-term liquidity profile.’ Notably, refinancing of the revolver, along with around $1 billion of proceeds from bonds issued earlier this year, fully addresses CBS’s liquidity needs and better positions the company to manage maturities through the end of 2013.

Moody’s also said that CBS’s favorable third quarter performance and strong advertising in the scatter market point to signs of recovery in the national ad market. CBS’s television segment, which accounts for approximately 68% of the company’s top-line, reported revenue and EBITDA growth (y-o-y) of 9% and 17%, driven by higher license fees for syndicated products and an uptick in national ad revenue at the CBS broadcast network. Despite uncertainties still facing the economy, improvement in the company’s third quarter results suggests that the ad market recovery may be gaining traction, albeit at a stubbornly slow rate due to continuing weakness in local advertising at the company’s television and radio stations, and to a somewhat lesser degree, at the outdoor advertising division. According to Moody’s, the pace of earnings decline shows signs of leveling out as evidenced by CBS’s revenues and reported EBITDA, which declined by approximately 1% and 6.5% in Q3-09 versus 13% and over 50% in the first six months of 2009. ‘Even easier year over year comparisons should make results look that much better in the current fourth quarter and the first half of 2010,’ Begley added.

CBS’s debt-to-EBITDA leverage at 9/30/09 was approximately 4.8x (incorporating Moody’s standard adjustments) and we anticipate that as Q4-08 rolls off, leverage will climb further in the fourth quarter and will probably be at its high point at 12/31/2009. As we have stated in previous announcements, CBS will be weakly positioned in its rating category as credit metrics will remain pressured and weak for its rating through the economic downturn. Based on our view that the ad slump is in the bottoming-out phase, a year from now we expect CBS’s credit metrics will strengthen and the company will be well-positioned, bolstered by stronger profitability (in part due to its leaner cost structure), and the company will restore itself solidly in the Baa rating category. In Moody’s opinion, CBS has taken timely actions to preserve liquidity and we anticipate the cash position will further improve as the company is expected to generate most of its free cash flow (for 2009) in the fourth quarter. CBS continues to maintain business characteristics consistent with an investment grade credit profile and ratings remain supported by its diverse portfolio of media assets.”