Blaming disappointing box office from “The Divergent Series: Allegiant,” Moody’s Investors Service has lowered its outlook for Lionsgate to negative from stable.

Moody’s lowered its Speculative Grade Liquidity rating from SGL-2 to SGL-3. However, the agency affirmed the current credit ratings, praised the studio’s disciplined approach to film financing and asserted that operating performance will improve in the current fiscal year ending March 31, 2017.

Lionsgate stock declined 3.3% by 72 cents to $21.13 in trading on Friday. “Allegiant,” starring Shailene Woodley in the third film in the four-film Divergent franchise, has generated $50.7 million in its first two weeks at the domestic box office.

“The change in the company’s rating outlook is driven by higher than expected debt levels for the rating as well as weaker than expected operating results at its Motion Pictures segment, which accounts for 74% of consolidated revenues, due to underperformance of its slate of films over the last couple of months, including disappointing box office numbers for its latest production ‘Allegiant,'” Moody’s said.

The ratings agency said dividend payouts through free cash flow have amounted to $178 million in fiscal 2015 and $34 million in the first three quarters of fiscal 2016 while increasing gross debt well above management’s $500 million target level.

“These shareholder distributions have used the company’s financial resources which could have otherwise been used to maintain financial flexibility during difficult periods,” it added. “The rapid increase in leverage goes to show that it is imperative for companies in the inherently volatile motion picture industry to operate with low debt levels given the high business risk resulting from the high probability for occasional weak box office performance.”

Moody’s also noted that Lionsgate indicated via a regulatory filing in February that it is interested in exploring a potential mutually beneficial combination with premium cable network Starz in a merger that would involve stock or a combination of stock and cash. The agency said that a merger with Starz would be strategically beneficial due to the potential for collaboration between the two companies.

“We believe, the deal will enable Lionsgate to leverage its production capabilities to benefit from the increasing demand for original programming and theatrical output which are important to Starz, and thereby boost revenues and profitability for the combined entity,” it noted.

Moody’s also said Lionsgate’s operating performance will improve in fiscal 2017 as a result of a more diversified slate of film titles and continued strong demand for its television programming. But it said the credit rating could be downgraded if a deal with Starz fails to take place or if the company’s upcoming new film productions perform poorly at the box office.

“Further, since the rating outlook is negative, Moody’s does not anticipate a positive rating action in the near term,” it added.

Moody’s also said Lionsgate’s credit profile continues to be supported by its disciplined approach to film production and focus on low to mid-budget films.

“The company’s track record of negotiating co-production agreements and acquiring or producing niche films which cost significantly lower than typical big-budget tent pole movies, reduce financial exposure associated with motion picture production,” the agency said.

“The rating also reflects Lionsgate’s ability to generate good cash flows from its library consisting of over 16,000 film titles and television episodes. Additionally, we also expect continued operating momentum in the company’s television production business to support long-term growth.”

Shares of Lionsgate were hammered on Feb. 5, falling 27% to $18.53 in a single session in the wake of disappointing earnings and the company indicating that performance was tracking under previous forecasts.

The company had cited a soft performance by its movies — mostly notably “The Hunger Games: Mockingjay Part 2” — as the key reason for falling short of Wall Street expectations in its earnings for its third fiscal quarter ended Dec. 31. Since then, “Allegiant” and “Gods of Egypt” have disappointed at the box office.

Major upcoming titles include “Criminal” on April 15, “Now You See Me 2” on June 10, “Deepwater Horizon” on Sept. 30, “Middle School: The Worst Years of My Life” on Oct. 7, “Boo: A Madea Halloween” on Oct. 21,  “La La Land” on Dec. 2, “Patriots Day” on Dec. 21, “Power Rangers” on March 24 and the final Divergent movie, “Ascendant” on June 9, 2017.