Dividend `Off the Table' as Broadcaster CME Seeks Debt Cut

  • CME to use `all excess cash' to service, pay down 2018 debt
  • Standard & Poor’s upgrades company after refinancing agreement

Central European Media Enterprises Ltd. won’t pay dividends in the “foreseeable future” as it wants to use improving earnings to reduce its debt, co-Chief Executive Officer Michael Del Nin said.

A refinancing deal announced this week, which extends maturities and cuts interest costs, will allow the broadcaster to start lowering the principal on its $1 billion debt, Del Nin, 44, said in an interview in Prague on Monday. CME, as the company is known, will use “all excess cash” to service and pay down its shortest loan, due in November 2018, according to the co-CEO.

“We’ve put in place a new instrument that actually sets us on a path not to continually refinance our debt, but to start paying it down,” said Del Nin. “Given the leverage levels that we have, and given the target that we’ve now set for ourselves to substantially pay down the 2018 instrument, I would say dividends are off the table for the foreseeable future.”

The Bermuda-registered operator of television channels in central Europe and the Balkans has been struggling to emerge from eight straight yearly losses as dollar gains and high debt costs outweighed a rebound in advertising sales. Del Nin, hired in 2013 along with co-CEO Christoph Mainusch, has relied on asset sales and funding from the main shareholder, Time Warner Inc., to try turn the company around amid an economic recovery in the region.

CME said on Monday it obtained a new 469 million-euro ($516 million) loan guaranteed by Time Warner and maturing in February 2021 and will use the proceeds to refinance its debt maturing next year. The deal cuts the borrowing costs on this portion of the company’s debt by 4.5 percentage points, and the interest rate will decline further if the broadcaster reduces its net leverage.

Standard & Poor’s lifted CME’s credit ratings late on Tuesday, saying the refinancing agreement alleviates the risk of a short-term financial distress and citing expectations the company’s earnings will keep improving.

The shares, which are traded in the U.S. and the Czech Republic, dropped 4.1 percent to 56 koruna on Wednesday as of 3:17 p.m. in Prague, paring their gains since the restructuring announcement to 0.2 percent. The stock is down 16 percent this year, giving the company a market capitalization of 7.61 billion koruna ($310 million). The price compares with a peak of more than 2,000 koruna in 2007.

Improving Earnings

Operating income before depreciation and amortization jumped 29 percent last year to $123 million even as revenue shrank 11 percent to $606 million because of dollar appreciation. In the last three months of 2015, the company swung into a $1.1 million income from continuing operations.

Improving earnings reduced CME’s debt burden to 8.5 times Oibda at the end of 2015 from 10.8 times a year earlier. The leverage will probably drop below 8 times Oibda this year, triggering a cut in the interest on the new 2021 loan, according to Del Nin.

Time Warner has repeatedly increased its stake since CME started losing money in 2008, betting that the company will eventually benefit from the region’s economic convergence with developed nations.

“We’ve been pleasantly surprised by how rapidly the operations have responded to the changes that we’ve made,” Del Nin said. “We have a market-leading position in all of our countries, we’ve got the best brands, and we operate in markets that, over the long term, should grow faster than mature markets in western Europe and the U.S.”

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