S&P Rates Lions Gate Proposed Sr Secured 2nd-Lien Debt 'BB-',Recovery '4L'
Mar 02, 2015 13:01:00 (ET)
The following is a press release from Standard & Poor's:
NEW YORK (Standard & Poor's) March 2, 2015--Standard & Poor's Ratings Services
today assigned its 'BB-' issue-level rating and '4L' recovery rating to Santa
Monica, Calif.-based independent film studio Lions Gate Entertainment Corp.'s
proposed $250 million senior secured second-lien term facility due 2022. The
'4L' recovery rating reflects our expectations for average recovery
(30%-39.9%) of principal in the event of a payment default.
The company plans to use the net proceeds to fully repay the $225 million
senior secured second lien-term loan due July 2020, to repay a portion of the
outstanding borrowings under its existing senior revolving credit facility
($160.5 million outstanding as of Dec. 31, 2014), and for general corporate
purposes.
We raised our corporate credit rating on Lions Gate to 'BB-' from 'B+' on Jan.
6, 2015, based on our expectation that Lions Gate's revenue and cash flow
visibility will improve over the next two years. The rating also reflects our
assessment of the company's business risk profile as "weak," based on our
criteria. This assessment stems from the inherent volatility of the motion
picture industry due to the high upfront costs, timing, and uncertain success
of film releases.
Our assessment of Lions Gate's financial risk profile as "significant"
reflects our expectations for discretionary cash flow to debt of more than 20%
(including production loans) and leverage of 3x-4x for the next two years due
to the Hunger Games and Divergent franchises' success and the company's risk
mitigation strategy. Our assessment also reflects the cash flow volatility and
formidable upfront cash requirements inherent in the film studio business.
Leverage, pro forma for the proposed transaction, is about 4.1x, as of Dec.
31, 2014.
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
RATINGS LIST
Lions Gate Entertainment Corp.
Corporate Credit Rating BB-/Stable/--
New Ratings
Lions Gate Entertainment Corp.
Senior secured second-lien term facility due 2022 BB-
Recovery Rating 4L
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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(END) Dow Jones Newswires
March 02, 2015 13:01 ET (18:01 GMT)
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