Lionsgate's Credit Outlook Cut by Moody's After 'Allegiant' Box Office Miss

Murray Close/Lionsgate

The ratings agency cites a "high debt burden and weak operating performance" at the studio's motion picture segment.

The credit ratings agency Moody’s on Friday cut Lionsgate's corporate outlook to negative over concerns for the studio's debt burden and weaker box-office performance.

In a note, Moody’s Investors Service analyst Neil Begley noted the "underperformance" of recent movie releases, including Allegiant, the third film in the Divergent franchise. Moody's kept Lionsgate's Ba3 debt rating, but lowered the studio's outlook from stable to negative.

While noting Lionsgate's credit rating was under pressure, Moody's said the studio's corporate profile continued to be supported by a "disciplined approach" to film production, where it reduced its financial exposure. The agency also noted Lionsgate earlier announced it was in discussions about a merger with Starz.

Such a merger, while hinging in part on the amount of debt, asset disposals and synergies involved in its execution, could improve Lionsgate's credit standing, Begley argued. "Moody's believes that a merger with Starz would be strategically beneficial due to the potential for collaboration between the two companies," his note said.

Speculation about a Lionsgate-Starz combination first surfaced when Liberty Media boss John Malone swapped a portion of his stake in Starz for a bit of the Hunger Games studio. That investment followed speculation that Starz was looking to sell itself to a bigger company, with some analysts seeing that as a precursor to a hook-up between the cable company and Lionsgate.

Moody's said it will wait and see if a combination with Starz materializes in the coming quarters, and will continue to weigh the performance of Lionsgate's movie release slate. Lionsgate's stock took a knock from investors after the YA film adaptation The Divergent Series: Allegiant disappointed at the box office by not getting close to the numbers reached by earlier films in the franchise.

Allegiant's weak performance followed earlier box-office duds including Gods of Egypt, The Last Witch Hunter and Mortdecai.

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