Viacom: Downgrade UBS rating to BBB from BBB+ The following is a summary of our full-length report on this topic, also dated October 7, 2005.
Details of split-up announced by Viacom In an S-4 SEC filing VIA said that it plans to split into two companies: CBS Corp. (CBS), containing the broadcast networks and radio and the New Viacom, containing entertainment assets including Paramount and the cable networks.
Most of existing debt expected to remain at CBS Corp. It is expected that the bulk of existing VIA debt ($10.6 billion) will be at CBS and we would expect CBS to have leverage of about 2.2x. We believe that the new CBS's leverage and relatively stable operating profile is consistent with a mid BBB rating.
Rating Agency actions Moody's downgraded VIA to Baa3 from A3 reflecting reduced diversity and a continuing high dividend payout ratio. S&P left VIA's ratings on CreditWatch with negative implications and said that it expects to rate CBS BBB after the spinoff.
We lower VIA's rating to BBB and upgrade to Market Perform We lower VIA's rating to "BBB" from "BBB+" and change the Credit Trend to "Stable" from "Deteriorating." We believe that current spreads reflect a stable operating profile, moderate leverage, and an aggressive dividend policy and we consider VIA to be Market Perform (previously Underperform).
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