MONTREAL — Entertainment company Alliance Atlantis is mulling moves to spin off its lucrative film distribution unit into an income trust to avoid some corporate taxes and to raise funds to cut debt, which stood at $427 million at the end of the first quarter.
“We are always looking at financing options and ways to enhance value and enhance our capital structure and lower our cost of debt,” Judson Martin, Alliance Atlantis chief financial officer, told investment analysts on Monday.
“This would include the income trust structure,” Martin said in a conference call to discuss quarterly earnings (Daily Variety, Aug. 26). “We’ve been pitched by many, many investment banks on this subject. We’ve not made any decisions at this point. However, one thing I can say is that we have no plans to issue common equity.”
A wire service report Tuesday about the continuing prospect of an IPO drew a denial from a company spokesperson, who referred all inquiries to exec statements on the matter in the Monday conference call.
An income trust involves selling trust units to buyers to raise cash, rather than selling publicly traded common stock as in an IPO.
The dividend paid to trust investors is based on multiples of the company’s cash flow. Such trusts still allow the parent company to retain control of the spun-off entity.
Alliance Atlantis’ film-distribution division has recently renewed long-term output deals with New Line, Miramax and Artisan. That should ensure a steady stream of high-profile product in Canada, making it a good bet for investors who have turned to income trusts as a higher source of investment return in Canada.
The film distribution group is already a reliable contributor for Alliance Atlantis. Its revenue for the first quarter was actually down, at C$59.4 million ($43 million), compared to $53 million in the first quarter last year. However, Alliance Atlantis’s higher-profile releases are due later this year, including Quentin Tarantino’s “Kill Bill” and the third installment in the “Lord of the Rings” trilogy.
The distribution group is also starting to make more money from its U.K. distributor, Momentum Pictures. Momentum accounted for 29% of the motion picture group’s first-quarter revenue and 34% of the group’s cash flow.
Alliance Atlantis investors are worried about the level of debt, which was $427 million at the end of the first quarter. That’s down from $493 million a year earlier and the drop is mostly due to the recent strength of the Canadian dollar.
Alliance Atlantis is a publicly traded company on the Toronto Stock Exchange, where its share price fell 30 cents to close at $15.86 on Tuesday. It touched a 52-week high of $16.48 earlier in the session.