Fitch: CBS's Ratings Unaffected by Radio Divestiture

CBS Corporation's (CBS) 'BBB' Issuer Default Rating is not affected by the announcement that the company is pursuing strategic alternatives for its radio station business, according to Fitch Ratings. CBS had approximately $8.5 billion of debt outstanding as of Dec. 31, 2015.

While potential transaction details have not been disclosed, Fitch expects that CBS will structure a transaction in a leverage neutral manner and that the company's financial policy, namely its commitment to a leverage target of between 2.5x-2.75x, remain unchanged. Fitch anticipates that the majority of proceeds received by CBS in connection with the radio divestiture will be distributed to shareholders and that the company will take steps to reduce debt to maintain leverage in line with Fitch's 2.75x gross leverage target for the current ratings.

From Fitch's perspective, the potential divestiture of the radio business is aligned with CBS' content-centric business strategy, which focuses on more stable and recurring revenue streams and positions the company to reduce its exposure to more volatile advertising revenues. The company's exposure to advertising revenues declines to 45% pro forma for the divestment of its radio business from approximately 50% during the year ended Dec. 31, 2015.

The anticipated exit from the radio business would enable the company to focus on long-term revenue growth opportunities and de-risk its business model by reducing its exposure to volatile advertising revenues. CBS highlighted its plan to leverage its content-centric strategy to increase revenues by an incremental $3.75 billion through 2020. The company intends to capitalize on its strong content position to drive long-term revenue growth in retransmission and reverse compensation and international distribution while capturing revenue growth opportunities presented by changing media consumption patterns and emerging devices with over-the-top video services, skinny bundles and monetization of time-shifted viewing.

CBS is the second largest operator of radio stations in the U.S. with 117 radio stations, with a majority concentrated in the top 25 largest radio markets. Fitch estimates that CBS's radio business generated approximately $1.3 billion of revenue during 2015, representing 8.8% of consolidated revenues. Radio segment revenues declined 6% during 2015 reflecting the weak advertising environment, fewer radio stations, and lower political revenues. Fitch believes that secular headwinds will continue to dampen the operating profile within the radio segment. Listenership will remain under moderate secular pressure from competitive alternatives, and Fitch anticipates low- to mid-single-digit annual advertising revenue declines (excluding digital).

Competitive alternatives and new Internet and mobile entrants will reduce time spent listening to terrestrial radio, although the audience reach should not decline substantially.