Investor guide gives shingle its first public rating
Summit Entertainment is planning to issue $800 million in new debt and, as a result, the mini-major has received its first debt ratings from Moody’s Investors Service and Standard & Poors.
Both agencies expressed a mix of optimism and caution about Summit in analyses issued Wednesday.
“We remain cautious about the sustainability of strong credit metrics beyond 2012, given the end of the ‘Twilight’ franchise, uncertainty about a replacement franchise and the volatile nature of the company’s business,” Moody’s said.
Summit’s proposing a $600 million, sever-year senior secured term loan and a $200 million, five-year senior secured revolving credit facility. It plans to use the funds to pay down existing debt from the $1 billion in debt and equity raised four years ago when Summit launched its effort to become a full-fledged production and distribution company.
S&P said its “stable” rating outlook “reflects our view that the company will be able to generate sufficient cash flow to meet principal amortization requirements and maintain an adequate cushion under its financial covenants over the intermediate term.” Moody’s also issued a “stable” outlook, which it said reflects a balance between an expectation of strong cash flow from the “Twilight” franchise and consequent debt reduction over the next few years, and an increase in risk over time with greater dependence on new, nonsequel-based films.
“A rating upgrade is unlikely in the near term based on the company’s relatively short history, small portfolio size and low visibility on the revenues in later years which bear higher risk,” Moody’s said. It added that it could upgrade if Summit pays down debt at a more rapid pace due to better-than-expected and consistent performance of new films and total leverage falls.
Moody’s also said a rating downgrade could occur if revenue and cash flow are significantly below expectations and the company is not on the projected pace for debt reduction.
Both gave “B” ratings to Summit’s debt. Moody’s said the B1 rating reflects the “inherent high risk” of the film biz and Summit’s dependence on new film production, recognizing its modest library.
Summit will open the fifth and final “Twilight” film Nov. 16, 2012 — nearly a full year after the fourth film — with the official title “The Twilight Saga: Breaking Dawn — Part 2.”
Summit saw success in the fall with “Red,” which grossed $90 million, and is exploring a sequel. Its 2011 releases include “Drive Angry,” “Source Code,” “The Beaver” and “Three Musketeers,” and it recently wrapped the Sam Worthington thriller “Man on a Ledge.”