Sumner Redstone is in what is known on Wall Street as a "death spiral": The more the stocks of Viacom and CBS drop, the more of them he will have to sell to pay off his debts, and the more of Viacom and CBS will have to sell, the more their stocks will drop.
Viacom and CBS fell 20% last week. Sumner's negotiations with his creditors continue.
WSJ: Investors in Viacom and CBS have grown increasingly concerned that Mr. Redstone will have to sell more stock in the two companies as market conditions worsen. Mr. Redstone has said repeatedly that he doesn't plan to sell any more stock in either.
While the banks can't force Mr. Redstone to sell more stock, because the debt isn't secured, the plummeting value of his assets could give him less wiggle room in negotiations with lenders. Mr. Redstone is expected to have to sell some assets as a condition of a restructuring, according to people familiar with the situation.
If the banks pulled the plug on the debt now, National Amusements would likely have to file for Chapter 11 bankruptcy-law protection, people familiar with the situation said.
But while the banks are under pressure themselves, that scenario could ultimately prove a bigger headache than a restructuring, and it's not currently on the table, the people said.
Still, the discussions have some distance to go, and the outcome remains uncertain, they said. While the two sides have made progress, the negotiations are going slowly, the people said, in part because the lenders are juggling a string of other negotiations.
For obvious reasons, Sumner wants to sell his string of movie theaters instead of Viacom and CBS stock. Unfortunately, in this environment, they probably won't fetch half of what they would have a year ago.
See Also: Sumner: I'm Not Broke
