Standard & Poor's Puts Lionsgate on Creditwatch Positive Post-Summit Takeover

2 REP DEALS Twilight H
Andrew Cooper/Summit Entertainment

Robert Pattinson and Kristen Stewart of the "Twilight" films. After months of negotiations, the mini-majors have agreed to a sale price of $350 million cash, plus $50 million in stock and the assumption of about $300 million debt.

The ratings agency said the mini-major issued minimal debt to complete the takeover of the "Twilight" studio and had improved its "business risk profile."

TORONTO - Standard & Poor's has placed its rating of Lionsgate Entertainment on creditwatch positive after its leveraged buyout of Summit Entertainment.

The ratings agency pointed to “positive implications” from Vancouver-based Lionsgate taking on minimal debt to complete the $412.5 million takeover, as it used around $284 million of cash from the balance sheet at Summit to complete the deal.

“…In our view, the acquisition modestly improves Lionsgate's business risk profile, mainly on account of increased leverage over exhibitors and creative capabilities,” Standard & Poor's credit analyst Deborah Kinzer said in a note Wednesday.

The Summit acquisition was not without risk, the rating agency added.

"Still, due to the volatile nature of cash flows in the film industry, as well as the company's upfront cash requirements, we would most likely assess the combined company's business risk profile as ‘vulnerable’ or ‘weak,’” Kinzer added.

Standard & Poor’s was considering an upgrade of the rating for the new Lionsgate/Summit entity, depending on the “combined company's pro forma liquidity position, production strategy, and acquisition orientation under the new structure.”