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Moody’s Downgrades Viacom Debt Rating

Moody’s Investors Service downgraded its ratings on Viacom’s debt because the cash flow from the company’s operations continue to be weak relative how much the company has borrowed.

Viacom on Wednesday announced that it would cut its dividend by 50% to conserve cash and help pay down its debt. The company’s revenues and earnings have been depressed, and following a boardroom battle, the Redstone family emerged in control and ousted CEO Philippe Dauman.

The company lowered its earnings guidance because of the poor anticipated performance of an upcoming film and to pay the costs of Dauman’s $72 million severance package.

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Moody’s said the dividend move had largely anticipated and reduced its ratings on Viacom’s senior unsecured debt to Baa3 from Baa2 and cut its rating on short-term commercial paper to Prime 3 from Prime 2.

Viacom’s ratings is above the 3.25 multiple that qualifies a company for a Baa2 ratings.

“We believe the added financial flexibility from the announced dividend cut will not on its own be sufficient to materially reduce gross debt and adjusted leverage to levels consistent with the higher Baa2 debt rating in the intermediate term,” Moody’s said.

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Moody’s said Viacom’s credit ratings outlook is stable.

But it noted that the new rating “assumes that the company's increased programming investments will begin to yield results and viewership ratings for its shows along with advertising sales improves going forward, and that the company will enjoy the benefits of moderate contractual escalations in its network affiliate agreements.”

Moody’s added that “inability to drive operating performance to deliver stronger results and turnaround performance of its programming could put downward pressure on the Baa3 rating, even if financial metrics are reflective of an investment-grade credit profile. This will be a growing concern as the company gets closer to the next affiliate negotiation cycle incoming years.”