Standard & Poors is considering an upgrade of Lionsgate’s corporate credit rating, saying the purchase of Summit could put the studio on a sounder financial footing.
The big ratings agency placed its “B-” corporate credit rating on what’s called “CreditWatch with positive implications” and predicted the deal could end up reducing Lionsgate’s debt “meaningfully.”
Wall Streeters expect Summit’s “Twilight” franchise to inject half a billion dollars of fresh cash into Lionsgate over the next five years.
The new listing reflects the possibility of an upgrade, which, S&P said, will depend on the combined company’s new cash position, strategy and “acquisition orientation.”
The agency estimated Lionsgate’s pro forma debt at roughly $1.1 billion — or $1.5 billion including film financing obligations — as of Sept. 30, 2011.
It also said the acquisition modestly improves Lionsgate’s business risk profile on account of increased leverage over exhibitors, and creative capabilities.
The $412 million deal, a combination of cash, stock and bonds sale, was announced Friday.
Lionsgate shares bounced higher late in the trading day Wednesday, closing up 2.24% at $9.14, a new 52-week high.
Corporate credit ratings determine how much risk an investor is taking on. The idea is that the lower the rating the more likely a company is to default so it has to pay higher interest rates in order to attract investors.