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CBS credit ratings: It's in the eye of the beholder

June 5, 2009 |  5:22 pm

The multiplier effect

Like TV critics, credit agencies and analysts don't always don't agree in their reviews.

Take CBS. Not its shows, its debt. Late today, credit rating agency Standards & Poor's lowered its grade for the company's debt to BBB- from BBB. While a BBB- doesn't sound so bad (at least that's how I felt about my B- grades), in the world of S&P it's the worst "investment grade" credit rating you can score. In making the move, S&P cited General Motors' bankruptcy filing and the fallout from the closure of thousands of automobile dealerships around the country. Auto dealers are a major advertiser on local TV. Not good.

"It is unclear how quickly these once very substantial revenues will be replaced by new sources," wrote S&P analyst Heather Goodchild, according to Bloomberg. Because CBS relies much more on advertising revenue than other media companies that generate income from cable TV subscription fees, it is expected to feel the most pain from the problems of the auto industry. In a report earlier this week, Bernstein Research analyst Michael Nathanson wrote that the worst-case scenario of GM's bankruptcy and eventual reorganization is a cut in advertising of $1.3 billion, or 9%.

But not everyone is so pessimistic about CBS's ability to weather the problems facing the auto industry. Fitch Ratings is keeping the company at its triple-B status, saying it can endure the economic downturn and meet its debt obligations. Even Bernstein's Nathanson, who is bearish on what GM's bankruptcy will do to the ad market in the near term, upgraded CBS stock to "market-perform," saying the company's local stations should actually benefit in 2010 from a resurgence of increased auto spending.

-- Joe Flint

Photo credit: Gary Friedman / Los Angeles Times