News Column

Fitch: New CBS Leverage Target Won't Impact Ratings

August 8, 2014

NEW YORK--(BUSINESS WIRE)-- CBS Corp.'s decision to establish a leverage target won't negatively affect the company's ratings, according to Fitch Ratings. We also believe the company has significant flexibility within the current ratings to accommodate the announced expansion of its share repurchase authorization to $6 billion.

The company said Thursday it would establish a leverage target of 2.5x, announced an expansion of its share repurchase authorization to $6 billion and increased its dividend to $0.15 per share from $0.12 per share. Fitch's Issuer Default Rating for CBS is 'BBB'.

CBS' new leverage target provides the company sufficient flexibility relative to Fitch's 2.75x gross leverage target for the current ratings. The company maintains an above average exposure to cyclical advertising revenue relative to other large media companies. However, adopting a more conservative financial policy highlighted with a gross leverage target of 2.25x or lower together with meaningful progress in CBS' efforts to transform its revenue mix and reduce its reliance on cyclical advertising revenues could have a positive ratings affect. Additionally, CBS needs to demonstrate that its operating profile can sustain itself amid ongoing competitive pressures, changing media consumption patterns and evolving technology platforms.

Fitch anticipates that CBS will maintain a rational approach to managing its balance sheet. We expect the company to gradually increase leverage to its target while preserving its historical conservative financial policy in the context of capital allocation strategy and merger and acquisition activity.

CBS' credit profile is strongly positioned within its ratings category, providing the company with material financial flexibility to accommodate the modest increase in its leverage resulting from the split-off of CBS Outdoor Americas. Fitch estimates consolidated leverage, pro forma for this split-off (completed on July 16, 2014) was 1.9x as of the LTM period ended June 30, 2014, which was in line with the company's pro forma leverage as of year-end 2013.

Share repurchases continue to be the centerpiece of CBS' capital allocation strategy and the company's primary tool to achieve its leverage target. Shareholder returns that exceed free cash flow generation are incorporated into the current ratings to the extent that leverage remains below Fitch's 2.75x total leverage threshold. With annual free cash flow (defined as cash flow from operations less capital expenditures and dividends) expected to range between $1.3 and $1.4 billion, the company has material flexibility within the current ratings to accommodate its capital allocation policy.

CBS is on track to return approximately $6 billion of capital to its shareholders during 2014. This includes $1.5 billion from the company's accelerated share repurchase program completed during the first quarter, $1.2 billion of anticipated regular share repurchases, common dividends and the exchange of CBS' stake in CBS Outdoor Americas that will be included in the shareholder return calculation for 2014 (valued at $2.7 billion based on the CBS stock price on the closing date of the exchange).

Fitch believes the split-off of CBS Outdoor Americas is in line with the company's overall strategy to become a content centric business, grow non-advertising revenues and create a revenue base that is more stable and recurring. The transaction will reduces CBS' exposure to cyclical advertising revenues.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings

David Peterson, +1 312-368-3177

Senior Director

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Rolando Larrondo, +1 212-908-9189

Senior Director

or

Kellie Geressy-Nilsen, +1 212-908-9123

Senior Director

FitchWire

Fitch Ratings, Inc.

33 Whitehall Street

New York, NY 10004

or

Media Relations:

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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