Fitch Lowers Viacom Outlook to ‘Negative’

Cutting stock buyback could help rebuild credit-worthiness
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The Fitch credit rating agency lowered its outlook for Viacom’s credit-worthiness to negative from stable.

The agency says that Viacom’s debt is above its targets and that there is minimal tolerance if the macroeconomic environment weakens or Viacom’s operating profile begins to deteriorate.

Fitch left its ratings of specific Viacom borrowing unchanged, but noted that its credit profile is weak for those ratings.

“Viacom's historically aggressive capital allocation posture, which has long favored share repurchases in excess of free cash flow generation, along with the weak operating results have combined to produce a credit profile that is not consistent with Fitch's expectations for the 'BBB+' rating,” Fitch said.

But Fitch says Viacom appear to be taking steps that would improve its credit.

“The suspension of its share repurchase program and the reallocation of free cash flow to reduce debt and changing its strategic programming focus and investment towards more original scripted programming, are appropriate given the current operating environment as the company attempts to recapture operating momentum and position the company to better monetize the changing viewing habits of its target audience,” Fitch said. “Viacom's decision to adopt a more conservative financial posture is in line with Fitch's expectations.”

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