B.O. hits shift Lionsgate from stable to positive

Moody's also cites recent debt reduction for lifting rating

TORONTO -- Box office success with "The Expendables" and "The Last Exorcism" has helped convince Moody's Investors Service to lift its debt rating for Lionsgate from stable to positive.

Moody's also cited the Vancouver-based mini-studio's recent debt reduction, courtesy of a July senior subordinated notes-to-equity conversion that has activist shareholder Carl Icahn raising an alarm and his hostile takeover bid for the mini-studio to $7.50 per share.

"While Moody's remains cautious regarding the inherent and significant volatility of the theatrical production business and the negative cash flow in recent years, the company's growing investment in both film, and particularly the upfront investment in television programming, is expected to generate improving operating profits and free cash flow over the next few years," Moody's, which rates Lionsgate debt at B2, said in a statement.

The ratings agency recognized uncertainty surrounding Lionsgate from its high-profile fight with Icahn, before adding: "A material change in the direction of the company that does not balance the interests of both equity and debt holders and that increases credit risk, could cause a reversal of the positive outlook or put downward pressure on the rating."
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