UPDATE 3-Redstone's National Amusements faces debt crunch
* National Amusements renegotiating debt terms
* Sharp drop in Viacom, CBS caused violation of covenant (Recasts, adds analyst comment, details on debt)
By Paul Thomasch
NEW YORK, Oct 17 (Reuters) - Sumner Redstone's National Amusements Inc is in talks with bankers to renegotiate terms on a $1.6 billion debt, due to a sharp drop in the value of two major assets, CBS Corp (CBS.N) and Viacom Inc VIAb.N.
At issue is a covenant that requires National Amusements to maintain a certain debt-to-asset ratio, which it failed to do after shares of Viacom and CBS plunged on fears of an advertising slump. Redstone is the largest shareholder in both companies, which are the cornerstone of his media empire.
"The issue resulted from recent unprecedented market volatility which led to a precipitous drop in the value of the CBS and Viacom shares which are among the assets owned by NAI," National Amusements said in a statement on Friday.
National Amusements' 1,500-screen theater chain -- the heart of its business -- is also counted among its assets.
The $1.6 billion debt was arranged by Bank of America (BAC.N) and others. Half of that, $800 million, will need to be repaid by year's end.
The news comes just days after National Amusements sold $233 million in its nonvoting stock in CBS and Viacom, less than its initial target of $400 million, to pay down debt.
In the past month, CBS shares have dropped 45 percent while Viacom shares have fallen 28 percent.
Rich Greenfield, an analyst with Pali Research, said that if "NAI is unable to access the debt markets to refinance its bank debt, NAI would have to sell all of its nonvoting shares of Viacom and CBS and even begin to sell some of its voting shares."
Another analyst, Dave Novosel at Gimme Credit, also cautioned in a report that "further weakness at National Amusements could require more stock sales."
A committee of National Amusement board members George Abrams, David Andelman and Shari Redstone, who is Sumner Redstone's daughter, is overseeing the discussions with banks. National Amusements is also being advised by Citigroup and Shearman & Sterling.
Shares of Viacom, which owns the MTV Networks and Paramount film studio, were down 14 cents, or 0.8 percent, at $18.36 on the New York Stock Exchange. Shares of CBS were up 60 cents, or 6.8 percent, at $9.40 on the NYSE.
Both media companies have been hard hit by the downturn in advertising as companies cut back on marketing in the face of a worsening economy.
Last week, Viacom warned that third-quarter profit would fall short of analysts' estimates, while CBS said 2008 adjusted operating income would miss its own forecasts. (Visit blogs.reuters.com/mediafile/ for more coverage at the Reuters MediaFile blog) (Editing by Steve Orlofsky, Jeffrey Benkoe, Gary Hill)
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