Credit standing company Fitch has reduce Lionsgate’s debt ranking to “unfavorable,” from “steady,” which implies additional revisions are attainable.
Fitch additionally affirmed the studio’s long-term debt issuer ranking at B, whilst an analyst cited the Hollywood studio dealing with steep content material prices for its linear TV and streaming platforms and “Fitch’s uncertainty concerning the efficiency of theatrical releases within the subsequent two years as theatre attendance will not be anticipated to return to pre-pandemic ranges.”
Fitch raised issues over Lionsgate’s use of manufacturing loans and different debt amenities to fund its manufacturing prices, which will likely be repaid utilizing money from promoting and licensing movies and TV reveals.
“The elevated (debt) stability is because of upfront funding for content material that was produced – however not launched – throughout the pandemic and the heightened content material funding by linear and digital distribution platforms. These traits resulted in elevated stock and minimal money receipts with which to paydown related manufacturing loans,” Fitch noticed.
The rankings agency provides Lionsgate is trying to field workplace from John Wick 4 and the Starvation Video games sequel The Ballad of Songbirds and Snakes to assist pay down debt, including these tentpoles have “comparatively built-in audiences and are anticipated to carry out properly.”
“Fitch believes administration is dedicated to strengthening the stability sheet via FCF (free money stream) deployment and expects the corporate to maneuver considerably in the direction of Fitch’s unfavorable sensitivities over the following two years,” the ranking company added as Lionsgate post-pandemic is predicted to return to optimistic free money stream in fiscal 2024.
Fitch additionally predicts a rebound for Lionsgate as content material for its streaming platforms is predicted to proceed driving subscriber beneficial properties, whilst shorter time period greater manufacturing and advertising bills compress revenue margins.
On the identical time, Fitch cautioned Lionsgate has been buffeted by advertising situations and aggressive pressures impacting its trade rivals as a result of elevated cord-cutting and the growing dominance of streaming platforms.
“The media panorama has been impacted by growing viewership fragmentation owing to shifting shopper preferences for on-demand and OTT (over-the-top) viewing and the increasing variety of choices from new media gamers. Whereas demand for content material is growing, these modifications are growing the danger profile of premium content material manufacturing as manufacturing prices rise for all gamers throughout the media ecosystem,” Fitch added.
Lionsgate is within the strategy of purchasing separate gross sales of its studio division and its premium cable division of Starz. The corporate’s management is predicted to share extra particulars of these plans throughout its quarterly earnings name on Feb. 9.