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21 February 2020 by jbchevrel

ViacomCBS Inc. (noted ‘CBS’) is a leading mass media conglomerate with TV, radio, online content, and publishing operations. CBS reported their results yesterday, missing the consensus on revenue and OIBDA. This is particularly interesting as this was the first reported quarter of combined results since the reunion of Viacom and CBS. The ViacomCBS CDS widened from ~60 to ~70 yesterday, on the back of that miss. Today the 5y CDS closed at 69, now around flat to AT&T 5y swap. Q4 revenue was reported at $6.9b (vs a consensus of $7.3b and the range of analysts listed by BBG was [$7.0b , $7.5b]), adjusted OIBDA came at $1,164m. Operating income and net earnings came in the red, at -$13m and -$273m respectively. Their margin was reported at 16.9% i.e. it fell -700bp from a year before. CBS stock is down almost -40% since the merger was announced on Aug 14, 2019 (incl. 16% yesterday alone) as market participants are concerned about scale, reinvestment needs, contract renegotiation (NFL) and FCF. Leverage-wise, CBS reported Gross Debt at $18.7b and Net Debt at $18.1b, taking leverage at 3.4x. That is basically a + 0.4x increase in leverage since the ViacomCBS transaction was announced. CBS is currently Baa2= / BBB= / BBB=, so according to those outlooks, no real expectation of rating change is baked in. without surprise, CBS reiterated their commitment to IG credit rating and set a target leverage ratio of 2.75x, while agencies have set 3.0x as the guide line for CBS to preserve their BBB rating. Going forward, debt reduction will be targeted with non-core disposal proceeds. The sale of the ‘Black Rock’ headquarter building in Manhattan had been confirmed by the CEO at the UBS TMT conference in December -- and is ongoing. CBS stated that the proceeds of the disposal will be used both (1) to de-lever the balance sheet, and (2) for stock repurchases. The only CBS employees at ‘Black Rock’ work in its corporate and administrative divisions. Also, in the ‘potential good news’ section, the company increased its estimate of annual run-rate cost savings to $750m from $500m. But in the context of a miss, this sounded more like CEO Bakish tried to shift investors’ attention to the benefits of the merger rather than on the disappointing numbers.