S&P Affirms Lionsgate Credit Rating on 'Hunger Games' Prospects

2:23 PM PST 08/24/2012 by Etan Vlessing

The ratings agency sees improved profitability and lower debt after the Summit Entertainment acquisition and the performance of its teen movie franchises.

TORONTO -- Standard & Poor's Ratings Services has affirmed its outlook on Lionsgate Entertainment at B stable, pointing to the mini-studio’s improved prospects for earnings after its Summit Entertainment acquisition.

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“The stable rating outlook reflects our view that Lionsgate's financial performance, including its profitability, will be stronger on average, over the next several years, than prior to the acquisition of Summit and the launch of the Hunger Games franchise,” Naveen Sarma, an analyst for the ratings agency, said in a note Friday.

S&P’s in January 2012 raised its rating for Lionsgate from B-.

“Our base-case scenario for the fiscal year ending March 31, 2013 assumes the box-office success of both the final Twilight film, Breaking Dawn 2, and the first Hunger Games film, The Hunger Games, will result in a significant boost to EBITDA in mid- to late-fiscal 2013, with a corresponding decline in leverage,” the report argued, citing concerns for Lionsgate’s debt load.

S&P is also looking to discretionary free cash flow to turn substantially positive.

At the same time, any chance of another upgrade is contingent on The Hunger Games franchise continuing to perform for the mini-studio, as it develops new movie franchises to maintain momentum.

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“Although less likely, we could lower our rating if the film slate underperforms at the box office, causing EBITDA and discretionary cash flow to remain minimal and straining liquidity in advance of debt maturities upcoming in less than one year,” S&P argued.

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