Will CBS have enough cash to avoid borrowing?


CBS Corporation executives have said that the company plans to use its cash flow to pay off all of its debt coming due through 2012. But one Wall Street analyst is questioning that, and suggests that the company could be forced to sell new bonds next year.

Despite the economic downturn, CBS still produces lots of free cash flow. And to ensure that its coffers don’t run low, the company last month slashed its dividend to conserve cash.

Barclays Capital credit analyst Scott Shiffman isn’t so sure the effort to hoard cash will be enough. He told clients in a note last week that CBS may come up short when a $1.4 billion bond issue comes due in July 2010. He figures the company might need nearly $900 million to meet that obligation.

Shiffman obviously has a more pessimistic view of how much free cash flow CBS will throw off in the next 17 months than CBS Corp. CFO Fred Reynolds and CEO Les Moonves. But if he’s right and they’re wrong, where will the cash to redeem those bonds come from?

CBS would be unlikely to draw on its $3 billion bank revolver, since that comes due just six months later. The most likely course would be for CBS to sell new bonds to replace the old ones. But Shiffman told the Los Angeles Times, “Given many investors’ concerns about the CBS credit, a potential new bond could have onerous terms for CBS.”