Viacom International Inc now faces the reckoning following its successful – but extremely pricey – bid for Paramount Communications Inc: there is deep concern at the amount of Viacom paper that will be flying around if it has to deliver on its guarantee of value by issuing millions more shares if its price falls in the market, and Standard & Poor’s Corp says it may still cut its ratings on the debt of Paramount, Viacom and Blockbuster Entertainment Corp, the third party to the deal and the one whose cash flow is required to finance it – to the chagrin of Blockbuster shareholders. The ratings agency said it may downgrade Paramount’s single-A senior debt, A-minus subordinated debt and A-1 commercial paper, Viacom’s double-B-plus subordinated debt and A-3 commercial paper, and Blockbuster’s triple-B-minus senior debt. In completing its review of Paramount, Viacom and Blockbuster, Standard & Poor’s said it will discuss with management its plans to integrate the three companies’ operations and will examine cost and revenue benefits of the transaction. In addition, S&P said it will assess the likelihood of intermediate-term refinancing of merger bank debt and the potential impact of those contentious contingent value rights to compensate holders that accepted the offer if the new company’s common stock does not meet targets.
