Fitch Rates Viacom's Notes 'BBB+'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned a 'BBB+' rating to Viacom Inc.'s (Viacom) $500 million 10-year senior unsecured note offering. The proceeds are expected to be used to tender for up to $500 million of Viacom's 6.25% senior notes due in 2016 (currently $1.5 billion outstanding). Fitch currently has a 'BBB+' Issuer Default Rating (IDR) for Viacom. The Rating Outlook is Stable.

The notes will be issued under Viacom's existing and indenture (dated April 12, 2006; amended September 2009) and will be pari passu with all existing debt. The notes will include an obligation of Viacom to repurchase the notes at 101% upon change of control (including a transfer of more than 50% of the company's voting stock, or a going-private transaction) and non-investment grade ratings, as defined. Similar to existing bonds, there are no financial covenants.

Fitch views the transaction as a modest credit positive. While total debt and leverage will be unchanged, the company will extend $500 million of maturities by five years and will reduce its 2016 refinancing needs. That said, given expectations for more than $1.5 billion of annual post-dividend free cash flow going forward and approximately $1 billion of cumulative maturities through 2015, Viacom would easily be able to repay the full 2016 maturity with cash if it so chose.

The ratings reflect Viacom's conservative financial policy and Fitch's expectations that leverage will remain near the company's 2.0 times (x) target ratio. Fitch's leverage threshold for the 'BBB+' rating is 2.25x. Ratings also incorporate the aforementioned strong free cash flow generation, driven primarily by the high-margin, largely recurring revenues associated with the company's cable networks. This free cash flow imparts a significant degree of financial flexibility, enabling the company to easily manage both the recently announced dividend (approximately $360 million annually) and expanded share repurchase program (Fitch expects approximately $1.75 billion in fiscal 2011) at current ratings. While material acquisition activity is not anticipated, Fitch believes that in the unlikely event of a large acquisition the company would hold back on buybacks in order to keep leverage at its target.

Viacom's ratings are underpinned by the strength in the company's Media Networks segment, highlighted by ongoing top line and EBITDA growth and margin expansion, as the cable networks continue to benefit from the dual-revenue stream of ad revenue and affiliate fees. Fitch expects low- to mid-single digit revenue growth and modest further margin expansion in fiscal 2011. Although the specter of cord-cutting is expected to remain an overhang as Viacom and other content providers experiment with alternative content delivery methods, Fitch does not expect a significant number of customers to cancel their cable subscriptions in the intermediate term. Fitch believes that customer viewing of content over the internet has been for the most part incremental rather than cannibalistic, indicating the viability of the cable business model. Fitch does not expect Viacom's credit profile to be impacted by this dynamic.

Viacom's ratings continue to be supported by its:

--Strong cash generating ability, led by the operating dynamics of its core cable networks; --Overall global prominence of its brands; --Leading positions in numerous attractive demographics; and --Solid carriage positions with the multiple service operators (MSOs).

Ratings concerns include:

--Viacom's exposure to cyclical advertising; --An increasingly fragmented landscape for some of the company's key targeted demographics; --Secular challenges related to audience fragmentation and time-shifting; and --The inherent volatility of the movie business.

Viacom's liquidity at Dec. 31, 2010 consisted of $911 million of cash and $2 billion available under the company's undrawn revolving credit facility (RCF), which backs up the CP program. Fitch views the liquidity position as solid, particularly in light of the relatively small upcoming maturities.

Pro forma for this issuance and tender, total debt at Dec. 31, 2010 was $6.8 billion and consisted primarily of 1) $193 million of senior notes due April 2011; 2) $596 million of senior notes due 2014; 3) $250 million of senior notes due 2015; 4) $1 billion of senior notes due 2016; 5) $4.3 billion of senior notes and debentures due 2016-2055; and 6) $432 million of capital leases and other obligations with various upcoming maturities. Fitch does not anticipate further near-term debt reduction, given minimal near-term maturities and no CP or RCF borrowings outstanding.

Fitch currently rates Viacom as follows:

--Long-term IDR 'BBB+'; --Senior unsecured notes and debentures 'BBB+'; --Senior unsecured bank facility due 2013 'BBB+'; --Short-term IDR 'F2'; --Commercial paper (CP) 'F2'.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Nov. 24, 2009); --'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Applicable Criteria and Related Research: Corporate Rating Methodology http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 Liquidity Considerations for Corporate Issuers http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666

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