Moody’s Investor Service downgraded Viacom’s credit following the struggling media company’s disclosure that it would tap debt markets to maintain its liquidity.
The ratings firm on Thursday lowered Viacom’s credit to one notch above junk status. The move came as Wall Street continued to digest news coming out of the Redstone family-controlled media company that owns MTV, Comedy Central, VH1, Nickelodeon and Paramount Pictures.
“A uniquely bad situation now looks even worse,” Pivotal Research senior analyst Brian Wieser wrote in a report.
Viacom on Wednesday said Thomas Dooley, who became chief executive on an interim basis last month, would leave the company Nov. 15. Viacom cut its dividend, reduced its earnings guidance and said it no longer was pursuing a sale of a stake in Paramount Pictures — which would have provided an infusion of cash.
The company also disclosed that it was taking a $115-million write-down because it was expecting another wreck at the box office, “Monster Trucks,” which is due in theaters in January.
“Now that the Paramount minority sale is off the table, Viacom needs to act quickly to refinance $900 million of debt coming due in the next seven months while another $1 billion is due before September 2018,” media analyst Michael Nathanson wrote in a report.
Viacom found itself in its cash crunch, in large part, because it aggressively bought back its stock, spending more than $15 billion in buy-backs when the stock was trading at more than $60 a share. Now the shares are hovering around $36. Shares closed Thursday at $35.82, down 23 cents.
In addition, the company’s adult-skewing networks — including MTV, Comedy Central, Spike and BET — have struggled in the ratings and Paramount Pictures is on track to lose $450 million this year.
Maintaining its investment grade credit rating remains important to Viacom, and that is one reason the company plans to refinance some of its debt. The company said that was also why it was cutting the dividend in half, which should free up $300 million.
“These actions are designed to balance the company’s focus on a strong balance sheet and its strategy to invest in world-class content and pursue opportunities to grow its core businesses,” Viacom said.
Viacom plans to look to internal candidates to serve as the next chief executive, including Robert Bakish, who currently oversees Viacom’s international operation. The company also plans to weigh outside candidates.
Analysts say whoever the company selects will be key to understanding whether Shari Redstone’s next mission is to reunite Viacom and CBS Corp., which her family also controls.
”While Dooley’s departure is far from surprising given all that has happened recently, it is nonetheless negative that the departure is occurring so quickly after his appointment,” Wieser said in his report.
If Viacom had a new chief executive lined up, Dooley’s departure would be viewed more favorably, he said.
“But it does not seem that this is the case,” Wieser wrote. “A comprehensive CEO search would typically take much longer than two months to complete, which suggests either a less-than-comprehensive CEO search to come, the placement of another caretaker in the CEO role for an interim period, or that there will be some effort to force a merger through with CBS.”