'Hunger Games' boosts company's financial status

Standard and Poor’s credit rating agency has revised its outlook upward on Lionsgate to “positive” from “stable,” citing recent performance by the studio’s films.

Analyst Naveen Sarma issued the report Friday.

“The outlook revision reflects the recent successes of the company’s film slate, particularly ‘The Hunger Games,’ and the potential for continued success with the last Twilight film (‘The Twilight Saga: Breaking Dawn Part 2,’ to be released on November 16) and our expectation that, as a result, the company could increase EBITDA beyond our $150 million expectation,” the report said. “We affirmed our ‘B’ corporate credit rating and all issue-level ratings.”

The agency also said that if Lionsgate show signs of progress broadening its success to other film franchises and additional TV series, it could raise the rating to B-plus.

“We believe the continued success of the Hunger Games franchise (three more films are expected over the next three years) could improve Lionsgate’s profitability and credit profile, especially if accompanied by continued TV success and the success of other feature films that builds the company’s base of continuing cash flow,” Sarma said.

The report noted that Lionsgate recently fully repaid the senior secured term loan ($299 million outstanding) that was issued earlier this year to finance its acquisition of Summit Entertainment. It also said that Lionsgate anked fifth in 2012 domestic box office, with a 10.8% share.

“Lionsgate will need to continue to source creative material for films that will appeal to a global audience, a contrast to its traditional smaller-audience, genre film. Aside from its feature film business,” the report saiid, “Lionsgate is a small supplier and distributor of cable TV programming, most notably “Mad Men”, “Weeds”, and “Anger Management” although it has scored some success with several popular series on cable TV and network TV, most notably “Nashville”.

We view the TV production business as complementary to feature film production, with the potential for recurring profitability if it produces hit shows that move into syndication.”

Sarma also noted that Lionsgate and the industry benefit from growing international box office

Lionsgate announced Oct. 18 that it had paid off its $500 million Summit term loan four years early, spiking its stock to record highs. Shares have remained in that range and closed down 11 cents Friday at $16.09 on the New York Stock Exchange Thursday after trading as high at $16.45.

Lionsgate took out the term loan as part of its $412.5 million leveraged buyout of Summit Entertainment in January. CEO Jon Feltheimer announced at the annual meeting in Toronto on Sept. 11 that Lionsgate had paid down more than $200 million of the $500 million Summit term loan.

The four “Twilight” films have generated more than $2.5 billion in the worldwide box office for Summit, with the fifth and final film, “The Twilight Saga: Breaking Dawn Part 2,” opening on Nov. 16. The penultimate “Twilight” grossed $705 million globally.

Variety first reported Sept. 27 that Lionsgate had closed an $800 million refinancing, marking one of the largest such transactions in Hollywood in recent years, and one that will save the company millions of dollars annually. That transaction and the payoff of the term loan mean that Lionsgate is paying significantly lower interest ?about 400 basis points ?for its operating funds, saving the company about $12 million in annual interest expense.

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