Viacom Inc. (VIAB - Analyst Report) has decided to issue $550 million debt in the form of $300 million senior notes and $250 million senior debentures, scheduled to mature in 2023 and 2043, respectively. The issued debts carry a respective interest rate of 3.250% and 4.875%. The debt issuance is expected to be closed by Mar 14, 2013.
Viacom expects to generate net proceeds of $546 million from the debt issuance, which will be utilized for fund general expenses, shares repurchase or repayment of debts.
Both S&P and Fitch ratings agency provided BBB+ ratings to Viacom’s proposed debt offerings, which comes under investment grade bonds.
In the recently concluded quarter, Viacom had $671 million in cash & cash equivalent and $8,371 million in outstanding debt on its balance sheet compared with cash and cash equivalent of $848 million and outstanding debt of $8,131 at the end of fourth quarter of fiscal 2011. Debt-to-capitalization ratio at the end of the reported quarter was 0.54 compared with 0.52 at the end of fiscal 2011.
During the first quarter of 2013, Viacom bought 13.3 million common shares for $700 million with $3.85 billion still left to be purchased under share repurchase program of $10 billion. Moreover, $1.2 billion senior notes to get matured in the next two years time. So a further issue of $550 million debts coupled with its share repurchase plan and annual interest payment of nearly $461 million will put pressure on the company’s cash flow in the next two years period.
Currently, Viacom has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Certain other companies belonging to the same media sector are CBS Corporation (CBS - Analyst Report), which has a Zacks Rank #2 (Buy) while other two News Corp. (NWSA - Analyst Report) and Time Warner Inc. (TWX - Analyst Report) have a Zacks Rank #3 (Hold).