Fitch Expects to Rate CBS 'BBB' with Negative Outlook

NEW YORK--(BUSINESS WIRE)--Oct. 27, 2005--Fitch Ratings expects to assign the following ratings to CBS Broadcasting Inc. following the successful completion of the separation of Viacom into two entities: New Viacom and CBS Broadcasting.

-- Issuer default rating 'BBB';

-- Senior unsecured debt 'BBB';

-- Anticipated bank facilities 'BBB';

-- Commercial paper 'F2';

-- Rating Outlook Negative.

Viacom's existing 'BBB+' rating will also remain on Rating Watch Negative by Fitch pending a successful split.

The expected ratings and Outlook for CBS Broadcasting Inc. (CBS) are contingent upon the successful completion of a tax-efficient separation of Viacom and assumes the ultimate operating businesses, capital structure, and fiscal policies of CBS will not materially deviate from the company's stated intentions and Fitch's current expectations. This includes expectations that New Viacom, immediately prior to the separation, will pay a special cash dividend to CBS in an amount sufficient to establish CBS's on-balance sheet debt at $7 billion.

Fitch's indicative ratings for CBS are supported by CBS' solid position in traditional media outlets that Fitch expects to continue to collectively capture a meaningful portion of advertiser's budgets, the continued diversity and scale of its businesses evidenced by the broad geographic reach of its products (two million global outdoor displays in over a dozen countries and including the 50 largest U.S. metropolitan markets, 178 radio stations most of which serve the 50 largest U.S. markets, 40 owned & operated television stations, and the CBS and UPN Networks serving over 180 affiliates each), and relatively low event risk related to large-scale debt financed acquisitions and/or share repurchases. The rating also incorporates CBS' vulnerability to cyclical trends in advertising, and its aggressive dividend policies that negatively impact free cash flow (defined as cash flow from operations less capital expenditures and dividends). Fitch estimates free cash flow to unadjusted debt to be in the 7.5%-10% range, which Fitch believes is weak for its rating category. The rating also takes into account legacy liabilities (asbestos and pension) that become more material to CBS as a stand alone entity.

The Negative Outlook incorporates secular trends and limited growth prospects for its Television and Radio Broadcast segments, the overall risk of competing technologies within the television and radio operating segments and management's challenges of competing as a standalone entity as these risks will be amplified following the split from the New Viacom businesses, and Fitch's expectations that shareholder friendly initiatives will be a significant focus for senior management and the board of directors going forward as unlocking shareholder value was the basis of the split.

The Outlook could be stabilized through consistent mid-single digit growth in operating results over the next 12-18 months with growth in dividend payouts to be commensurate with, and not exceed, long-term sustainable performance. Importantly, CBS' ability to develop new revenue sources with sustainable growth prospects such as the sale of its content and programming library over new distribution mediums (portable, broadband, mobile, etc.), carriage fees from the MSO's, multi-casts (CBS2, CBS3, etc.), capitalize on growth in online advertising, successfully resist technological changes related to DVR's and Satellite radio through the company's live sports and news programming, and/or a shift to operate CBS with more conservative financial policies could assist in stabilizing the Rating Outlook.

Fitch's expectations are that there will be no debt-financed share repurchases, dividends, or acquisitions going forward. Any material deviations from these expectations would pressure the ratings. In addition, downward pressure could also occur should CBS' free cash flow metrics deteriorate further than current levels, especially if such deterioration would occur from a secular shift in the company's operating businesses. The expected rating also assumes that unadjusted leverage (defined as total balance sheet debt to operating EBITDA) will normalize in the 2.25 times (x)-2.75x range after the initial capitalization.

The rating also takes into account event risk related to Viacom's asbestos liability, which Fitch expects to be assumed by CBS. With CBS projected to generate in excess of $500 million in annual free cash flow coupled with insurance, Fitch believes there is sufficient financial flexibility and liquidity to absorb future payments.

Liquidity is adequate and supported by CBS' free cash flow, cash ($550 million June 30, 2005 pro forma) and the company's $4.5 billion committed bank facilities. Fitch expects CBS to assume all existing debt of Viacom which totaled $10.7 billion at June 30, 2005. Viacom's credit facilities total $7 billion, of which Fitch anticipates CBS to assume $4.5 billion, with the other $2.5 billion facility terminating upon the split. The $4.5 billion in facilities will consist of a $3 billion revolving facility due February 2009 and a $1.5 billion revolving facility due March 2006. Fitch anticipates bank and commercial paper borrowings at Viacom will continue to increase in the third and fourth quarters for share buybacks and will be paid down by CBS upon receipt of the one-time special dividend from New Viacom, thereby resulting in $4.5 billion in available capacity for CBS. CBS will also assume $550 million of the existing $1 billion Viacom Accounts Receivable Securitization Program, all of which Fitch expects to be outstanding at the time of the split.

Depending on its use of proceeds from the New Viacom dividend, CBS could face significant maturities in 2006 and 2007 with $800 million and $725 million maturing, respectively. CBS has no other major note maturities until 2010. It is anticipated that the $2.3 billion of outstanding balances on the credit facility and commercial paper facility as of June 30, 2005 will be paid down upon receipt of the one-time special dividend from New Viacom. Fitch notes that the one-time special dividend from New Viacom should exceed bank and commercial paper outstanding balances and therefore Fitch expects CBS to redeem some of its outstanding notes, of which could be the 2006 and 2007 maturities.

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