Viacom Chairman and CEO Sumner Redstone suggested Tuesday the media company would consider undertaking a more aggressive fiscal policy to boost its share price, leading Moody's Investors Service to put the company under ratings review with a high chance of downgrade. The news drove Viacom's spread wider by nine basis points to 38bps on Wednesday from 29bps the day before.
Speaking at a conference in Phoenix, Ariz., Redstone said he was open to borrowing more money, leveraging the company and sacrificing a credit rating migration to return capital to shareholders, a trader explained. "He wants to enhance shareholder value and one way to do it is by buying back shares and re-investing," he said, adding this strategy will most likely be pursued. By taking on more debt, the company could be downgraded, he added.
Moody's Investors Service Wednesday placed Viacom's debt rating of A3 under review for possible downgrade. The review will focus on Moody's concern over whether the controlling shareholders will increase share price and shareholder return, which could include moving total adjusted debt beyond the ceiling allowed for an A3 rating, said Neil Begley, a senior v.p,. in Moody's corporate finance group in New York. Begley explained Redstone could, and probably would, remove board members who disagreed with his financial strategy. "If not now, some time in the future, Redstone will probably get his way," Begley said. He added Redstone plans to retire in the next few years and will want to see his policy in place before leaving. The agency may still downgrade Viacom based on its softened commitment to maintaining its A3 rating even if the board does not increase debt leverage.
