S&P Downgrades Central European Media Enterprises (CETV) to 'B', Outlook to CreditWatch Negative

Key Points:

• We consider the current status of the refinancing process for the $261 million noncallable convertible notes due Nov. 15, 2015, issued by Bermuda-registered TV broadcaster Central European Media Enterprises Ltd. (CME) is not commensurate with a 'B+' rating according to our criteria. The refinancing currently relies on the commitment letter provided by CME's key shareholder, the entertainment conglomerate Time Warner.
• We continue to assess CME as a "strategically important" subsidiary for Time Warner and acknowledge an ongoing improvement in CME's operating performance. However, we believe that Time Warner's commitment is dependent upon satisfaction of certain conditions, some of which are outside of CME's control.
• We are revising down our stand-alone credit profile on CME to 'ccc', lowering our corporate credit rating on CME to 'B' from 'B+', and placing our rating on CreditWatch negative.
• We will resolve the CreditWatch placement on or around Oct. 1, when we expect CME and Time Warner to announce CME's refinancing plan. We could lower the ratings if we anticipate that CME will not repay the convertible notes on time.

Standard & Poor's Ratings Services today lowered its long-term corporate credit rating on Central European Media Enterprises Ltd. (NASDAQ: CETV) (CME) to 'B' from 'B+'. At the same time, we placed the rating on CreditWatch with negative implications.

In our understanding, CME and its key shareholder, the U.S.-based entertainment conglomerate Time Warner, have not announced a material advancement in their plans for refinancing CME's $261 million convertible notes, which are due on Nov. 15, 2015. In a refinancing commitment letter that Time Warner provided as part of the refinancing transaction completed in November 2014, Time Warner committed to either guarantee an external bank facility, similar to the existing term loan that it guarantees on CME's behalf, or offer CME direct financing. However, we consider that the commitment letter does not represent an irrevocable and unconditional commitment to providing the financing on time, and contains a material adverse change clause that could prevent a timely repayment of the upcoming maturity, in our view.

We have lowered our assessment of CME's stand-alone credit profile (SACP) to 'ccc' from 'ccc+' because according to our criteria, its potential inability to repay the $261 million notes on time could cause a default within six months. That said, we do not consider the default inevitable because Time Warner has committed to refinancing this debt, albeit in a form we do not consider irrevocable and unconditional.

We continue to consider CME to be "strategically important" to Time Warner, under our group methodology analysis. This is because Time Warner guarantees, owns, or has committed to refinance substantially all of CME's debt. In addition, we view Time Warner's investment in CME as an important part of its international growth strategy, a view underpinned by the positive trend in CME's operating performance over the past few quarters.

The rating is three notches higher than the SACP, based on our group rating methodology and our assessment of CME as a "strategically important" subsidiary for Time Warner.

We expect to resolve the CreditWatch placement by or around Oct. 1, when we expect CME and Time Warner to announce CME's intentions with regards to the refinancing. We could lower the ratings if we believed that there was no reliable refinancing plan established at that time. We could remove the ratings from CreditWatch if the company provided evidence of clear progress in implementing the refinancing plan for the timely repayment of the convertible notes. Any upside after the refinancing of the convertible notes would depend not only on continuous positive operating performance but also on a debt maturity profile aligned with our criteria.

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