Central European Media Solvency Warning Triggers 55% Share Slump

Central European Media Enterprises Ltd. shares had their biggest drop in almost 13 years and bond yields surged to an 18-month high as the broadcaster said it may fail to meet debt obligations without additional funding.

The stock plunged 55 percent to $2.76 by 12:40 p.m. in New York, the worst intraday retreat since December 2000, with share turnover at more than 20 times the three-month daily average. Yields on the euro-denominated notes due September 2016 jumped 418 basis points, or 4.18 percentage points, to 13.84 percent.

The operator of TV channels partially owned by Time Warner Inc. is evaluating options including debt and equity financing and asset sales to help service its liabilities and fund operations, the Bermuda-registered company said in a statement today. It cut its full-year forecasts after the third-quarter operating earnings swung to a loss, according to the statement.

“We expect rating agencies to cut the debt rating and we also expect a share issue with a dilution effect on existing shareholders,” Pavel Ryska, an analyst at J&T Banka AS in Prague, wrote in report to clients today. “We consider the results negative for shares and bonds.”

The company’s secondary listing in Prague fell 51 percent to 56.75 koruna, with traded volume about 26-times average.

The operating loss before depreciation and amortization, or Oibda, for the three months ended Sept. 30 was $32.4 million, after income of $3.5 million a year earlier, the company said. Net revenue fell 3 percent to $135.8 million in the period.

Oibda Loss

CME, as the company is known, now expects a full-year Oibda loss of $40 million to $30 million and revenue between $640 million and $650 million. It also said it is in talks with Time Warner on a possible capital transaction to boost its liquidity.

“If we are unable to secure additional financing, we will be unable to meet our debt-service obligations and generally fund our operations sometime within the next 12 months,” the company said in the earnings statement.

Moody’s Investors Service downgraded CME’s bond rating Caa1, seven notches below investment grade, from B3 on Sept. 10 after the company cut its 2013 Oibda target to between $50 million and $70 million from $100 million to $120 million.

CME will need a financial injection in the first quarter of 2014 at the latest, most likely through a rights issue to Time Warner, according to J&T’s Ryska.

A share sale would probably be priced below the current market level, Josef Nemy, an analyst at Komercni Banka AS in Prague, wrote in a report to clients today.

“We will have to significantly reduce our estimates” for CME’s performance after “very weak earnings and a shocking guidance revision,” Nemy said.

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