S&P Upgrades Lions Gate, Sees Rev, Cash Flow Improving Over Next 2 Yrs
Jan 06, 2015 15:35:00 (ET)
The following is a press release from Standard & Poor's:
-- We believe that visibility into U.S.-based independent film studio
Lions Gate Entertainment Corp.'s revenue and cash flow will increase over the
next few years.
-- We are raising all our ratings on the company, including the corporate
credit rating, to 'BB-' from 'B+'.
-- The stable outlook reflects our expectations that Lions Gate will
broaden its cash flow base by firmly establishing new film franchises,
expanding its film library cash flow, and growing its TV production segment
profitably--all of which could reduce earnings volatility.
NEW YORK (Standard & Poor's) Jan. 6, 2015--Standard & Poor's Ratings Services
said today that it raised its ratings on Santa Monica, Calif.-based Lions Gate
Entertainment Corp., including the corporate credit rating, to 'BB-' from
'B+'. The outlook is stable.
"The upgrades reflect our expectations that Lions Gate revenue and cash flow
visibility will improve over the next two years," said Standard & Poor's
credit analyst Naveen Sarma. "We believe that Lions Gate's strategy of
focusing on selected larger budget film franchises and moderate cost films,
while preselling certain rights to reduce the financial risk to the company,
improves visibility into its future earnings."
The stable outlook reflects our expectations that the company will broaden its
cash flow base by firmly establishing new film franchises, expanding its film
library cash flow, and growing its TV production segment profitably--all of
which could reduce earnings volatility. As a result, we expect that
discretionary cash flow to debt (including production loans) will remain above
20% through fiscal 2016. We expect quarterly earnings and cash flow to still
fluctuate widely, depending on the timing and success of new releases.
Although the outlook is stable, we consider a downgrade more likely than an
upgrade over the next few years.
We could lower the rating if the company deviates from its current strategy of
focusing on moderate-cost films and selected franchise films. A shift that
involves higher average cost films or a higher annual output with fewer
franchise films could result in more earnings and cash flow volatility.
Additionally, a significant debt-financed acquisition that we conclude will
push discretionary cash flow to debt (including production loans) below 20%,
with no prospects for returning above 20%, could result in a downgrade.
Increases in shareholder-favoring actions that also push discretionary cash
flow to debt (including production loans) below 20% could result in a
downgrade.
We consider an upgrade as highly unlikely during the next two years. We could
raise the rating if the company significantly reduces its cash flow
volatility. This could involve developing new film franchises that register
box office success following the conclusion of the current franchises,
ensuring healthy ongoing EBITDA and positive discretionary cash flow.
Profitable growth of the TV production segment, which could reduce earnings
volatility and improve margins, would likely be an important contributor to an
upgrade scenario.
RELATED CRITERIA AND RESEARCH
Related Criteria
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Dec. 16, 2014
-- Corporate Methodology, Nov. 19, 2013
-- Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013
-- Key Credit Factors For The Media And Entertainment Industry, Dec. 24,
2013
-- Methodology: Management And Governance Credit Factors For Corporate
Entities And Insurers, Nov. 13, 2012
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
Primary Credit Analyst: Naveen Sarma, New York (1) 212-438-7833;
naveen.sarma@standardandpoors.com
Secondary Contact: Chris E Valentine, New York (1) 212-438-1434;
chris.valentine@standardandpoors.com
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January 06, 2015 15:35 ET (20:35 GMT)
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