S&P Global Ratings has put National Amusements Inc. (NAI), the holding company controlled by the Redstone family, on credit watch after it drove the merger of Viacom and CBS.
The ratings agency said National Amusements has violated a “minimum collateral covenant on its debt” owing to recent declines in ViacomCBS’ share price. ViacomCBS shares have dropped from around $35 on Feb. 19 to trade at $20.28 in late afternoon trading on Tuesday and have fallen 51 percent year-to-date.
The coronavirus outbreak and its projected impact on Hollywood’s movie slate and theater attendance this year has also driven National Amusements onto a credit watch, according to the ratings agency.
“Additionally, we expect the spread of the new coronavirus to negatively affect theater attendance in 2020 as movie releases are delayed and consumers increasingly avoid public areas,” S&P Global Ratings said in a statement.
It added NAI acquired a waiver allowing it to repair the covenant violation, which requires a certain debt-to-asset ratio, by March 28.
“While the decline in the value of the collateral package is substantial, we believe the company has sufficient assets to cure its covenant violations by adding more shares to the collateral package, using cash on hand to reduce its outstanding debt, or by amending the credit agreement to provide additional headroom,” the agency argued.
Executives at National Amusements were not available to comment on the holding company being placed on credit watch, but sources close to the company insist no default on debt has taken place and what is regarded as a “technicality” is expected to be quickly resolved.
In the meantime, S&P Global Ratings has put NAI’s current ‘B+’ issuer rating on a credit watch “with negative implications.” National Amusements controls ViacomCBS shares and Sumner Redstone’s daughter, Shari Redstone, is board chair of a recombined CBS and Viacom entity.
Executives at ViacomCBS were not available for direct comment on S&G Global Ratings putting Redstone’s holding company on credit watch.
