Aug 21 -
Summary analysis -- Lions Gate Entertainment Corp. ---------------- 21-Aug-2012
CREDIT RATING: B/Stable/-- Country: Canada
State/Province: British Columbia
Credit Rating History:
Local currency Foreign currency
27-Jan-2012 B/-- B/--
13-Oct-2009 B-/-- B-/--
Standard & Poor's Ratings Services' rating on British Columbia-domiciled and Santa Monica, Calif.-headquartered movie and TV studio Lions Gate Entertainment Corp. reflects the consolidated company's "weak" business risk profile and its "highly leveraged" financial risk profile (based on our criteria). As of Aug. 12, 2012, Lions Gate ranked sixth in domestic box office, with a 9.1% share, according to boxofficemojo.com. The January 2012 acquisition of Summit Entertainment modestly improved Lions Gate's business risk profile, which we previously regarded as "vulnerable." The acquisition increases the company's creative capabilities and could add to its leverage over exhibitors if stronger intermediate-term film performance continues over the long term. Still, it remains subject to the volatile nature of cash flows in the film industry, and formidable upfront cash requirements for production and marketing.
Lions Gate's financial risk profile is "highly leveraged." Pro forma for the Summit acquisition, we estimate EBITDA for the 12 months ended June 30, 2012, to be negative. Thus pro forma debt to last-12-months' EBITDA is not meaningful.
Our base-case scenario for the fiscal year ending March 31, 2013 assumes the box-office success of the final Twilight film, "Breaking Dawn 2," will result in a significant boost to EBITDA in mid- to late-fiscal 2013, with a concomitant decline in leverage. The EBITDA turnaround also should cause discretionary cash flow to turn positive. In fiscal 2014, we expect the company to keep benefitting from "Breaking Dawn 2." Depending on its success developing new film franchises after the completion of the Twilight series, Lions Gate could have greater cash flow visibility over the next few years than prior to the Summit acquisition. EBITDA and discretionary cash flow generation will depend on the future magnitude of production spending and the company's ability to acquire creative elements suitable for new film franchises.