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Sumner Redstone's financial picture brightens

Big gains in the value of his family's shares in Viacom Inc. and CBS Corp. have given the billionaire some badly needed leverage with his lenders.

October 14, 2009|Claudia Eller and Meg James

Billionaire Sumner Redstone is breathing easier.

Although the 86-year-old media mogul faces a $500-million debt payment in the next two weeks, substantial gains recently in the value of his family's shares in Viacom Inc. and CBS Corp. have given Redstone some badly needed leverage with his lenders.

Redstone's privately held family holding company, National Amusements Inc., had planned to sell most if not all of its theater circuit to cover the looming debt payment. But with an improvement in his financial position as well as a loosening of the credit markets, Redstone has decided to hold on to the cinemas -- at least for now -- and thus avoids a fire sale of those assets at the bottom of the market, according to people close to Redstone.

Many of National Amusements' 118 theaters sit on valuable property, but Redstone's plans to auction them off came as the commercial real estate market began to tumble. Some likely buyers, including other theater owners, have been saddled with their own debt and not in a position to make a big acquisition.

Redstone had received bids for the theaters, according to people familiar with the auction who asked not to be identified because the talks are private.

But apparently none of the offers was high enough to compel Redstone to wrap up a quick deal -- particularly if he wasn't under pressure from his bankers to shed assets.

In the last seven months, shares of Viacom, which owns MTV Networks, Nickelodeon and Paramount Pictures, have more than doubled in value, closing Tuesday at $28.70 a share.

During the same period, the price of CBS stock has tripled, closing Tuesday at $12.15 a share. CBS has benefited from a slight upturn in the advertising market and a strong start to the fall TV season, thanks to such shows as "The Big Bang Theory," "NCIS" and the latest hit, "NCIS Los Angeles."

"The pressure has certainly eased given the dramatic rise in the value of CBS and Viacom stock and the overall health of the credit markets," said Rich Greenfield, media analyst with Pali Capital. "The credit markets have thawed considerably in the last three months."

A year ago, the picture was much bleaker for Redstone.

When the financial markets collapsed in the fall of 2008, the value of CBS and Viacom plummeted, triggering a violation of National Amusements' covenants on $1.6 billion in debt.

Redstone's daughter, Shari Redstone, who runs the National Amusements theater chain, and other representatives spent the next few months restructuring the debt. In February, they reached an agreement with the bankers to extend the payments over nearly two years.

Redstone also paid down debt, reducing the total to $1.46 billion.

A new provision in the restructuring gave the banks more protection: National Amusements put up its Viacom and CBS shares as collateral for the loans. Since then, the increased value of those stocks has helped assure the banks that they could recoup their money.

A National Amusements spokeswoman declined to comment. Sumner and Shari Redstone did not return calls. The elder Redstone owns 80% of National Amusements, and his daughter holds the remaining 20%.

An announcement about Redstone's pending debt payment is expected shortly, people close to the matter said.

Redstone has other ways to satisfy the bankers beyond selling his theaters. For example, he also could sell shares of Viacom and CBS without diluting his controlling interest in the two companies.

It is unclear whether Redstone's bankers have agreed to roll over the loans again, or if he will repay all or part of the $500 million due.

When he last publicly addressed National Amusements' debt situation, during Viacom's second-quarter earnings call in late July, Redstone said: "We are extremely pleased with the progress we are making, and I must tell you we are extremely pleased with our relationship with our banks."


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