Standard Poor's revises Lionsgate's debt rating

TORONTO -- Standard Poor's Ratings Services on Friday revised its rating outlook for Lionsgate to developing from negative to reflect its current merger proposal with debt-laden Metro-Goldwyn-Mayer Studios Inc.

Standard Poor’s said the move was taken to reflect a possible raising or lowering of Lionsgate’s current B1 rating depending on how its run at MGM turns out.

“If a transaction is consummated with minimal additional debt, it could improve Lionsgate's credit metrics, but if substantial debt is involved, financial risk could increase,” the rating agency said.

Ironically, Standard Poor’s in late March placed Lionsgate’s under a microscope with negative implications after Carl Icahn, the mini-studio’s largest shareholder, launched an unsolicited tender offer to acquire stock in the company that he did not already own. 

Now with Lionsgate and Icahn pacting to propose a merger with MGM, the ratings agency is revising its credit rating yet again.

Standard Poor’s is clearly wary of MGM’s roughly $4 billion of debt as it considers a possible bankruptcy filing in which MGM creditors would become equity holders in a company controlled by Spyglass Entertainment.

Alternatively, Lionsgate is proposing to merge its own programming library with MGM’s own film library, which includes the popular James Bond films.

“A combination with Lionsgate would bring significant additional film library assets and cash flow, but could entail substantial production funding and financing needs if the new company's management pursues an active production strategy under the MGM brand,” the ratings agency said Friday.

Standard Poor’s added that Lionsgate’s July 20 debt exchange with Mark Rachesky, another major shareholder, “does not change our view that the company's overall financial risk remains very high.”

That conversion of around $100 million in debt to equity also diluted Icahn’s stake in Lionsgate to around 33%, and prompted lawsuits now making their way through courts in New York and British Columbia.