UPDATE 2-Redstone company to sell 20 pct of CBS, Viacom stake

(Adds byline, reason for share sale, background on company, Redstone family; updates share price)

By Gina Keating

LOS ANGELES, Oct 10 (Reuters) - National Amusements Inc, a privately held company controlled by Sumner Redstone, will sell more than 20 percent of its stake in Viacom Inc (VIAb.N) and CBS Inc (CBS.N) to pay down debt to comply with its credit agreement covenants.

National Amusements, which holds controlling interests in both media companies worth $1.84 billion, said on Friday it will sell a total of $400 million worth of nonvoting shares of Viacom and CBS.

The share sale was announced nearly simultaneously with warnings from Viacom and CBS that a slumping U.S. advertising market would drag on third-quarter earnings. The two companies are National Amusements' main assets in addition to a 1,500-screen theater chain.

A National Amusements spokeswoman would not describe the company's debt covenants, but a typical agreement would require a corporate borrower to maintain a certain debt-to-income ratio to access credit.

An equal dollar value of CBS and Viacom shares will be sold by a wholly owned subsidiary of National Amusements, NAIRI, subject to market conditions, the company said.

NAIRI owns 46.8 million Class A voting shares and 23.4 million Class B nonvoting shares of Viacom, as well as 46.8 million Class A voting shares and 39.8 million Class B nonvoting shares of CBS.

Redstone was negotiating over the summer to buy out the equity interest of his daughter, Shari Redstone, in CBS and Viacom. Shari Redstone, who owns 20 percent of National Amusements, runs the theater chain, and sits on the boards of Viacom and CBS.

Shari Redstone had been expected for years to take over from her 85-year-old father as chairman of Viacom and CBS, but their public dispute over corporate governance last year has clouded the succession issue.

Shares of Viacom tumbled more than 18 percent to $16.35 after the company warned that a slumping advertising market would drag its third-quarter earnings below Wall Street estimates.

Shares of CBS were down 14.3 percent at $8.69 in afternoon trading on the New York Stock Exchange. (Reporting by Gina Keating; Editing by Brian Moss)