S&P analyst Naveen Sarma said, “The upgrade reflects the significant improvement in Lionsgate’s credit metrics since it closed on the acquisition of Summit Entertainment in 2012.”
Lionsgate bought Summit for $412.5 million when the stock trading at $8.60 a share, and the issue has more than tripled in value. Lionsgate announced Oct. 18 that it had paid off its $500 million Summit term loan two years early.
“We expect that the company will at least maintain current credit measures, and will likely modestly improve them over the next two years,” Sarma said. “We believe this improvement will stem from continued success of the ‘Hunger Games’ franchise, growth in more predictable television production revenues, and a continuation in the company’s strategy of giving up some film revenue upside to temper per film cost exposure.”
The analyst cited Lionsgate’s growth in the TV production business with “Mad Men,” “Weeds,” “Anger Management” and “Nashville” and said it is “complementary” to feature film production with the potential for recurring profitability if it produces consecutive hit shows that move into syndication.
“Lionsgate and the industry benefit from growing international box office revenues that help cushion a long-term secular decline tendency in the U.S. domestic theatrical attendance,” Sarma said.
“The Hunger Games,” starring Jennifer Lawrence, took in $408 million domestically and $283 million outside the U.S. The second film, “Catching Fire,” will open Nov. 22 with the third and fourth titles opening in the subsequent November slots in 2014 and 2015.