Moody’s Cut Lionsgate’s (NYSE:LGF) Corporate Outlook

Moody’s Cut Lionsgate’s (NYSE:LGF) Corporate Outlook

$LGF, $STRZA $LMCA

Friday, Moody’s cut Lionsgate’s (NYSE:LGF) corporate outlook to Negative over concerns for the studio’s debt burden and weaker box office performance.

In a note, Moody’s Investors Service analyst noted the “underperformance” of recent movie releases, including Allegiant, the 3rd film in the Divergent franchise. Moody’s kept Lionsgate’s Ba3 debt rating, but lowered the studio’s outlook to Negative, from Stable.

While noting Lionsgate’s credit rating is under pressure, Moody’s said the studio’s corporate profile continued to be supported by a “disciplined approach” to film production, where it reduced its financial exposure.

The agency also noted Lionsgate has announced it was in discussions about a merger with Starz (NASDAQ:STRZA).

Such a merger hinges in part on the amount of debt, asset disposals and synergies involved in its execution, could improve the Lionsgate’s credit standing.

“Moody’s believes that a merger with Starz would be strategically beneficial due to the potential for collaboration between the two companies,” the note said.

Speculation about a Lionsgate-Starz tie-up surfaced when Liberty Media (NASDAQ:LMCA) boss John Malone swapped a portion of his stake in Starz for a stake in studio.

That investment followed speculation that Starz was looking to sell itself to a bigger company, with some analysts seeing that as a precursor to a tie-up between the cable company and Lionsgate.

Moody’s said it will “wait and see” if a combination with Starz materializes in the coming Quarters, and will continue to weigh the performance of Lionsgate’s movie release slate.

Lionsgate’s stock took a big hit from investors after the YA film adaptation The Divergent Series: Allegiant disappointed at the box office.

Allegiant’s weak performance followed earlier box office DOAs like Gods of Egypt, The Last Witch Hunter and Mortdecai.

Have a terrific weekend.

Paul Ebeling

HeffX-LTN

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