Moody’s Investors Service said it had placed Viacom’s long term debt ratings on review for possible upgrade and affirmed the company’s Prime-2 commercial paper rating. Viacom has approximately $6.3 billion of debt rated by Moody’s.
“The review is prompted by debt reduction and positive operating trends which have led to an improvement in the company’s credit metrics. Moody’s expects that Viacom’s de-leveraging trajectory will continue over the near-term as the economy recovers and debt-to-EBITDA leverage will decline to under 2.25x by year end 2010, which is consistent with our previously outlined rating upgrade trigger. Viacom’s strengthening credit metrics include debt-to-EBITDA leverage of 2.3x (LTM 3/31/2010, incorporating Moody’s standard adjustments) and LTM free cash flow conversion of greater than60%. The review is expected to be short and will focus upon management’s commitment to sustaining its strengthened balance sheet and support of higher investment grade credit ratings,” said the announcement.
“Over the past year, Viacom reduced costs and demonstrated solid business execution, which resulted in strong free cash flow generation despite challenging macroeconomic conditions. Moody’s also recognizes the company’s efforts at improving financial flexibility by reducing and refinancing debt prior to upcoming maturity dates. In Moody’s opinion, as a result of these initiatives, along with Viacom’s below average exposure to cyclical advertising spending, the company was able to better withstand the economic downturn than some of its large diversified media peers. Moody’s also derives comfort from Viacom’s recently demonstrated independence from its controlling shareholder, National Amusements Inc. (NAI), in the face of NAI’s dire financial crisis last year, and this will be a key part of our review,” Moody’s said.
“The review will also focus on the prospects for continued conservative financial practices, and the company’s ability to sustain strong credit metrics and cash flow growth trends through economic cycles and amidst challenging industry conditions,” the ratings agency added.