WFC Wells Fargo and Company

By Keach Hagey and Benjamin Mullin 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 27, 2020).

ViacomCBS Inc.'s parent company is losing some of its ability to borrow money at a time when its key revenue drivers -- movie theaters, new film releases and live-sports broadcasts from the CBS network -- have ground to a halt because of the novel coronavirus.

National Amusements Inc., the movie-theater chain that in recent decades has become predominantly a holding company for its controlling stake of ViacomCBS, has reached a deal with Wells Fargo & Co. to restructure its credit facilities, the company said Thursday.

The restructuring became necessary after the value of the ViacomCBS shares pledged as collateral for credit fell below Wells Fargo's minimum threshold, according to people familiar with the matter.

ViacomCBS's stock has been under pressure long before fears about the spread of the coronavirus started roiling global markets. Shares started dropping pretty much since the merger of sister companies CBS and Viacom was finalized last year, and are down nearly 65% so far this year.

As part of the deal with Wells Fargo, National Amusements is giving up the $75 million revolving credit line that was available to its movie-theater unit, people familiar with the matter said.

"Following this amendment, [National Amusements] will have a revolving facility of $125 million," the company said, which it can use to fund operations of its theater business. The company's $125 million credit line existed prior to the deal and had been renewed, the people said.

National Amusements also said in its filing that it wouldn't "sell stock in ViacomCBS and does not intend to pledge additional stock of ViacomCBS" as a result of the new deal.

Shari Redstone, the chairman of ViacomCBS and president of National Amusements, recently purchased $1 million of nonvoting shares in ViacomCBS.

Other financial terms of the deal aren't known. A Wells Fargo spokeswoman declined to comment.

A person familiar with the matter said the movie-theater unit, NAI Entertainment Holdings, had only drawn upon $25 million of its $75 million available credit, while the parent company had drawn upon none of its $125 million in available credit.

Michael Nathanson, an analyst for MoffettNathanson, said there are plenty of reasons behind ViacomCBS's stock fall, many of which predate the coronavirus crisis.

The company revised its free cash flow and profitability targets downward since the 2019 merger of CBS and Viacom, disappointing many investors, Mr. Nathanson said. Viewers continue to abandon pay-TV in droves, imperiling one of the company's core revenue streams.

Last year's merger of Viacom and sister company CBS was billed as a valuable combination that would create a "content powerhouse" by fusing Viacom's Paramount film studio and cable networks such as MTV, Nickelodeon and Comedy Central with the CBS broadcast network, giving both companies more leverage in negotiations with pay-TV distributors.

The market wasn't convinced. When the companies announced the combination in August, the value of the combined company was roughly $30 billion. By December, after its first day of trading, the company's value had sunk to $15.3 billion. Earlier this week, the company's value was $8.9 billion.

Earlier this month, the impact of the coronavirus on movie theaters as well as ViacomCBS's declining stock price prompted ratings agency S&P to put National Amusements on credit watch.

In its report, S&P said that ViacomCBS's slumping share price caused both National Amusements and its theater chain to violate a covenant that required the company to maintain a minimum amount of collateral for its credit. National Amusements obtained a waiver that gave the company until March 28 to fix the problem. S&P said it would remove the credit watch once the covenant violation was resolved.

S&P also said the spread of the coronavirus would continue to negatively affect theater attendance, which would make National Amusements' theater chain less profitable in 2020. Showcase Cinemas, National Amusements' North American theater chain, announced earlier this month that it was suspending operations until April 7.

Revenue from the movie theaters owned by National Amusements are threatened by the near-shutdown of the exhibition industry, as is Paramount's 2020 film slate, which is loaded with crowd-pleasers like "Top Gun: Maverick," "A Quiet Place Part II" and a new SpongeBob SquarePants film.

The National Association of Theatre Owners praised a stimulus bill that included $454 billion for the Federal Reserve System to make loans to businesses, states and municipalities. The bill passed the U.S. Senate on Wednesday.

Elsewhere, ViacomCBS's TV ad revenue stands to take a substantial hit from the cancelation of the NCAA Division I Men's Basketball Tournament, known as March Madness. Ad revenue for the tournament, which airs on AT&T Inc.'s Turner Sports and the CBS broadcast network, topped $900 million in 2019, according to market research provider Kantar Group. The last two rounds of the tournament, known as "Final Four," were to be broadcast exclusively on Turner Sports this year.

There have been some bright spots for ViacomCBS in recent days. The company struck deals to renew its licensing agreements with Nexstar Media Group Inc. and Meredith Corp., agreements that will lock in long-term affiliate revenue.

Write to Keach Hagey at keach.hagey@wsj.com and Benjamin Mullin at Benjamin.Mullin@wsj.com

(END) Dow Jones Newswires

March 27, 2020 02:47 ET (06:47 GMT)

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