The Wall Street Journal - 09.08.2019

B6| Friday, August 9, 2019 ** THE WALL STREET JOURNAL.

scription revenue in the most

recent quarter.

CBS Acting Chief Executive

Joe Ianniello touted the

growth of the streaming ser-

vice on the company’s earn-

ings conference call on Thurs-

day, saying that many of the

viewers are in younger demo-

graphics.

“The vast majority of our

All Access viewers are in the

18-to-49 demo,” he said. “So

as All Access consumption in-

creases, we are reaching youn-

ger consumers all the time.”

Overall, CBS said that quar-

terly profit increased 10% to

$440 million, or $1.17 a share,

while Viacom’s profit in-

creased 4.2% to $544 million,

or $1.35 a share.

There were some soft spots

in Viacom’s earnings. The

company’s affiliate revenue—

fees paid to Viacom from pay-

TV operators and other video

providers to license the com-

pany’s content—was $988 mil-

lion, down 1.4% from a year

earlier. Viacom has said it ex-

pects domestic affiliate reve-

nue to return to growth after

years of stagnation.

Revenue from Viacom’s

consumer products was $89

million, down 18% from a year

earlier.

On Wednesday, Viacom said

it would acquire Paws Inc., the

holding company that owns

the rights to the cartoon cat

Garfield. The move falls in line

with the company’s strategy of

buying well-known intellectual

property as fodder for pro-

gramming it can show on its

own cable networks and sell to

streaming services such as

those offered by Netflix Inc.

and Amazon.com Inc.

Separately, AT&T Inc. and

CBS reached an agreement

that will bring back CBS offer-

ings to about 6.6 million AT&T

customers who lost access to

local TV news channels be-

cause of a distribution-fee dis-

pute.

AT&T and CBS said CBS-

owned local broadcast sta-

tions, CBS Sports Network and

the Smithsonian Channel will

return Thursday for any AT&T

customers who have been af-

fected. The blackout has af-

fected 26 CBS-owned stations

in 17 markets, including New

York, Los Angeles and Chicago,

since July 20.

The companies said CBS lo-

cal affiliates and CBS Sports

Network will return to Di-

recTV Now and that the sports

network, along with the

Smithsonian Channel, will re-

turn to DirecTV.

AT&T and CBS didn’t dis-

close terms of the agreement.

CBS also recently reached

an agreement with Nexstar

Media Group Inc. renewing

CBS offerings for Nexstar sta-

tions that reach almost six

million households. The affilia-

tion agreements were sup-

posed to expire this year. Nex-

star is the biggest independent

operator of CBS affiliates.

—Kimberly Chin

and Allison Prang

contributed to this article.

BUSINESS NEWS

the market when we said we’d

return to ad-sales growth, but

we were committed to it, put-

ting in place a differentiated

strategy and working hard on

execution, and we are now be-

ginning to see that pay off,”

Mr. Bakish said.

Viacom’s performance has

vastly improved since Mr. Bak-

ish took over as chief execu-

tive at the end of 2016—an in-

dication that the cable giant is

on stronger footing than it

was last year, when it and CBS

previously held talks.

CBS also remains well-posi-

tioned in its negotiations with

Viacom, thanks to the resil-

ience of its broadcasting busi-

ness coupled with the growth

of its burgeoning direct-to-

consumer subscriber stream-

ing services.

CBS said the company was

on pace to hit its goal of

reaching 25 million subscrib-

ers for CBS All Access and

Showtime by 2022, adding

that direct-to-consumer sub-

scriptions helped drive a 13%

increase in affiliate and sub-

Private-equity firms are

turning to a complex type of

debt to dress up their compa-

nies.

The latest to pursue this

type of deal is Sesac Inc., a

Blackstone GroupLP-owned

company that collects royal-

ties on behalf of music artists

including Bob Dylan, Neil Dia-

mond and Adele. The company

last week raised more than

$500 million, according to fi-

nancial-technology firm Fin-

sight.

In the Sesac deal and others

like it, the company’s cash-

generating assets are piled

into a distinct entity that is

used to issue bonds. By dedi-

cating essentially the entire

business to repaying the debt,

the company obtains a better

credit rating and lowers its

borrowing costs. That can

make financially weak compa-

nies look stronger.

Companies owned by pri-

vate-equity firms Apollo

Global ManagementLLC and

Sentinel Capital Partners

have both completed whole-

business securitizations in the

past few years. Independently

owned and public companies

have done whole-business

deals as well.

For the Sesac deal, one risk

is the high degree of leverage.

A presale report by Kroll esti-

mates the company has higher

levels of debt in proportion to

cash than other whole-busi-

ness securitizations. Addition-

ally, the revenue the firm gen-

erates from radio and

television royalties has come

under pressure, according to

Morningstar’s presale report.

A 1990s incarnation of the

music royalty securitization,

which packaged up music leg-

end David Bowie’s royalties,

received a higher A3 rating

from Moody’s Investors Ser-

vice.

this deal, according to a per-

son familiar with the matter.

Whole-business deals are a

small but growing piece of the

market for unusual assets. So

far this year, companies have

done $6.3 billion worth of

whole-business securitiza-

tions, according to Finsight,

on pace to hit the highest

since at least 2008.

Additionally, Pet Supplies

Plus, a franchiser of specialty

retail stores, and Primrose

Schools, a franchiser of child-

care facilities and preschools,

are currently in the market

with deals, according to Kroll

presale reports from this

week.

Others that raised money

using this structure in 2019 in-

clude wellness chain Massage

Envy Franchising LLC and au-

tomotive firm Driven Brands

Inc., according to Finsight.

Both are owned by Atlanta-

based private-equity firm

Roark Capital Group.

at money manager T. Rowe

Price, which didn’t invest in

the Sesac deal.

Sesac’s deal priced last

week at a yield of 5.25%. The

bonds, which are backed by

royalty fees and other assets,

had a rating of triple-B from

Morningstar Inc. and triple-B

minus from Kroll Bond Rating

Agency Inc. Junk bonds

yielded around 6% at the time

of the sale.

By using this debt struc-

ture, Sesac will save 1.5 per-

centage points in interest ver-

sus the previous debt that the

company refinanced through

Many of the companies that

sell this debt wouldn’t be able

to get an investment-grade

rating if they simply issued

unsecured bonds.

They also might have trou-

ble raising money through an

initial public offering. But they

can sell these “whole-business

securitizations” because their

businesses typically generate

steady streams of cash to

cover debt payments.

They typically obtain rat-

ings that are investment

grade, generally triple-B-mi-

nus or above, but just a smid-

gen above lower-graded bonds

known as speculative-grade or

junk bonds.

“Because of the [investment

grade] triple-B rating and the

structure and assets, as an in-

vestor you’re more willing to

buy at a lower spread or yield

than you would be buying an

unsecured bond by the same

company,” said Evan Shay, an

asset-backed securities analyst

BYBENEISEN

Royalties, Pets Fuel New Bonds

‘Whole-business securitization’ bonds were recently issued by Sesac, a Blackstone-owned company that collects royalties on behalf of music artists such as Adele.

LESTER COHEN/GETTY IMAGES

milestone for the company,

adding that Viacom’s sales ef-

fort was bolstered by partner-

ships with pay-television com-

panies.

“I think it’s fair to say that

there was some skepticism in

Continued from page B1

Viacom,

CBS Boost

Results

Viacom plans to acquire Paws Inc., a holding company that owns the rights to cartoon cat Garfield.

FRANCISCO SECO/ASSOCIATED PRESS

Companies this year

have done $6.3

billion using these

types of structures.

News Corpreported an 8%
decline in revenue for the June
quarter, reflecting lower sales
at its book-publishing unit,
lower advertising revenue at
its news and information-ser-
vices business and the negative
impact of foreign-currency
fluctuations.
The New York-based media
company posted a net loss
available to stockholders of $51
million, or 9 cents a share, in
the quarter ended June 30,
compared with a loss of $372
million in the year-earlier pe-
riod, when a write-off weighed
on results.
Revenue fell to $2.47 billion.
Analysts polled by FactSet ex-
pected earnings of 2 cents per
share on net income of $24
million and revenue of $2.56
billion.
Earnings before interest,
taxes, depreciation and amorti-
zation were $269 million, down
14% from a year earlier.
News Corp’s largest unit, the
news and information-services
business, which includes The
Wall Street Journal, Times of
London and New York Post, re-
ported a revenue decline of 5%
to $1.23 billion. Those results
reflected a 3% negative impact
from currency fluctuations.
Advertising revenue for the
news unit fell 8%, of which 2%
reflected the negative impact
of currency fluctuations. Circu-
lation and subscription reve-
nues were flat overall, although
circulation revenue increased
7% at Dow Jones, reflecting
growth in digital subscribers
and price increases at the Jour-
nal.
The Journal added 43,000
digital subscribers from the
end of the previous quarter,
bringing its total to 1.82 mil-
lion. That is slower than the
pace of growth in the March
quarter, when 66,000 digital
subscribers were added.
Ebitda rose 14% at the news
unit, primarily due to higher
contributions from News
America Marketing, News
Corp’s in-store coupon and
marketing business. News Corp
recently announced it is re-
viewing strategic options for
the News America Marketing
unit, including a possible sale
of the business.
“We are acutely focused on
simplifying the structure of the
company and making clear the
full value of the sum of our
parts,” said Chief Executive
Robert Thomson.
Revenue in the HarperColl-
ins Publishers unit declined
14% from the year-earlier pe-
riod, when a “Lord of the
Rings” sublicensing pact
brought in significant revenue.
Ebitda in the unit fell 39%.

BYJEFFREYA.TRACHTENBERG

News Corp

Revenue

Fell 8%

In Quarter

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