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More woe for Carlton as S&P cuts rating

LONDON - ITV company Carlton has had its long- and short-term credit ratings cut for the second time this year, amid continuing concerns about the future of ITV's declining advertising revenues and its money-eating ITV Digital joint venture with Granada.

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Credit ratings agency Standard & Poor's has cut the TV company's long-term corporate credit and senior unsecured debt ratings to BBB from A-. Its short-term corporate credit and commercial paper ratings have been reduced to A-3 from A-2.

Carlton's long-term subordinate debt rating has been lowered to BBB- from BBB+ while maintaining Carlton's outlook as "negative", based on the prospect that the UK advertising market might erode further.

S&P said the cuts reflect the accelerated decline in the UK TV ad market, which is likely to lead to lower-than-expected earnings at Carlton.

"These costs are absorbing all of Carlton's operating cash flow from commercial TV and weakening its credit ratios," S&P said in a statement.

It added that although Carlton's below-par credit ratios are partly mitigated by ITV's appeal to mass-advertisers, ITV1 "faces increased competition in multi-channel homes from smaller channels that benefited from ITV's price escalation".

"During 2001," the S&P said, "ITV has led the recession in UK advertising sales."

Carlton's long- and short-term ratings have already been downgraded this year. In May, S&P said that the company's financial profile had been affected by the "substantial burden" of developing ITV Digital and related digital channels.

The agency warned at the time that Carlton's ratings would be lowered further if the commercial success of ITV Digital was delayed and Carlton's credit ratios did not recover sufficiently.

A ratings downgrade can result in a company having to pay higher interest rates on borrowing.

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