RATINGS RATIONALE

CME's B3 CFR reflects (i) the company's high leverage expected around 9x by year end 2012; (ii) the low probability of any near-term improvements in the company's TV advertising markets; and (iii) Moody's expectation that negative free cash flow generation will persist in 2013.

The rating also recognizes the company's strong market positions across all its markets and the strong credit profile of CME's largest shareholder, Time Warner Inc (Baa2), which now owns 49.9% of the company. It also incorporates the company's successful debt reduction in 2012 and refinancing of medium term maturities such that CME now enjoys a back-ended maturity profile.

The negative outlook reflects CME's recent announcement that it now expects its full year 2012 reported OIBDA to be in the range of USD130 to USD140 million (vs. previous guidance of USD150 to USD160 million at Q2 2012). This downward revision comes on the back of disappointing third quarter results during which the company experienced an 8% decline in revenues and a 55% decline in OIBDA in its broadcast division (on a constant currency basis).

This rapid deceleration in what was previously expected to be a recovering second half of the year is likely to put pressure on CME's credit metrics despite earlier efforts to reduce leverage through a successful equity raising exercise. As such, we expect full year Moody's adjusted debt to EBITDA to rise to close to 9x by the end of the year vs. our previous expectations of this ratio trending below 8x.

In addition, the company now forecasts free cash flow to be negative for the full year (around USD70 million to USD90 million) compared to previous guidance that CME would at least break even on its free cash flow generation in 2012.

Moody's believes that this changed behaviour by CME's advertising clients is unlikely to be reversed in the short term and the company is likely to experience pressures on its top line into 2013. Since CME relies on externally produced content for its programming schedule, the company is tied into some supplier contracts and has hence little room for margin improvement and 2013 EBITDA as well as free cash flow will continue to bear the brunt of this revenue declines.

CME's stand-alone credit profile is weaker than B3, and its ratings remain positively affected by the previously-evidenced support of Time Warner.

The ratings also take into account CME's adequate near-term liquidity profile, which remains supported by a cash balance expected at least at USD130 million by year end, although this will be eroded should CME not succeed in reversing the cash burn trends. We also take some comfort in the back-ended nature of the company's maturity profile with no debt due before November 2015.

Negative pressure on the rating would develop should the company be unable to stabilise its declining audience shares, or if CME were to lose substantial market share such that adjusted debt to EBITDA were to remain substantially above 8.0x. A downgrade would also be warranted should Time Warner show any signs of withdrawing support to the group.

Positive pressure on the ratings is limited given the downward trends observed in CME's advertising markets, however it could develop should the company manage to reduce its leverage to below 7x on a sustainable basis.

The principal methodology used in rating Central European Media Enterprises Ltd and CET 21 spol. s r.o. was the Global Broadcast and Advertising Related Industries Methodology published in May 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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