LOS ANGELES — Viacom Inc. needs to slash its dividend and improve its poor performance to avoid a cut to its credit rating, Moody’s Investors Service said, changing its outlook to negative from stable.
Viacom, owner of MTV and Comedy Central, was spared an immediate downgrade of its Baa2 rating during the ongoing dispute over control of the company, Moody’s said Tuesday in a statement. A court fight between controlling shareholder Sumner Redstone and chief executive Philippe Dauman could lead to a shift in strategy, Moody’s said.
Credit-rating companies are reexamining Viacom as it combats dual crises: a flagging business and a fight for control. Fitch downgraded Viacom last week. The company paid out more than $600 million in dividends in the past year and has net debt of $12.1 billion, according to data compiled by Bloomberg. Moody’s calculates Viacom’s debt at about 4.1 times earnings before interest, tax, depreciation, and amortization, and says the company needs to reduce that ratio below 3.25 in the next 18 months.
Viacom, based in New York, declined to comment.
The stock has declined 47 percent over the past two years as the company has suffered steep declines in viewership of its US cable networks. The shares fell 1.3 percent Wednesday, to $41.74. Advertisers have followed young viewers from Viacom’s channels to YouTube and Facebook, leading to eight straight quarters of shrinking domestic advertising sales.
“Lack of signs of improvement in operating momentum, further deterioration in credit metrics and importantly, continuation of ill afforded dividend payments in the face of diminishing financial strength, together are cause for the negative outlook,’’ Moody’s said.
Dauman has attempted to improve the company’s liquidity by selling a stake in Paramount Pictures. Representatives of Redstone say he strongly opposes any sale.
If Dauman prevails in court, Moody’s said, Viacom will have sufficient liquidity from the sale proceeds and dividend reduction to reduce debt and bring leverage to a level consistent with its current rating.
