Viacom’s Credit Rating Hovering Above ‘Junk’ Status After Moody’s Cut

Viacom, the struggling entertainment conglomerate, is facing still another challenge. Credit-rating agency Moody’s has cut the company’s status, leaving it hovering just above “junk” status.

Moody’s said Thursday it had cut Viacom’s rating to “Baa3” from “Baa2,” just a day after the New York owner of MTV, Nickelodeon and Comedy Central said its interim CEO, Tom Dooley, would step down in November. Viacom also cut its dividend in half and indicated it was no longer entertaining the idea of selling a minority stake in its Paramount movie studio.

“Today’s rating action reflects the continued weaker than anticipated rebound in the company’s operating performance and cash flow contributions, and our expectation for higher near-term adjusted leverage, which is well beyond levels commensurate with a Baa2 senior unsecured rating,”  Moody’s analyst Neil Begley wrote in the report.

A lower credit rating hurts a company’s ability to borrow money, making it more expensive for them to do so.

Moody’s said its change “reflects the continued weaker than anticipated rebound in the company’s operating performance and cash flow contributions and our expectation for higher near-term adjusted leverage.” Viacom’s decision to shrink its dividend marks a “prudent step,” but “will not on its own be sufficient to materially reduce gross debt”, Moody’s said. The ratings agency does not anticipate an upgrade to Viacom’s credit in the near term, unless Viacom programming gains new ratings and advertising momentum.

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