“Given the volatility this pandemic has generated … ratings on more vulnerable companies could be subject to multiple ratings actions,” S&P says
The continued spread of the novel coronavirus pandemic has already taken a massive toll on the bottom lines of media and entertainment companies. As companies continue to look for ways to stay afloat and survive the economic downturn, some have to worry about faltering credit ratings.
As of March 26, the latest comprehensive analysis available, S&P Global has already taken more than 25 ratings actions on companies identified as being the most vulnerable within the media and entertainment industry, which also includes event organizers, live-events companies, travel-related companies and movie exhibitors. When accounting for cruise lines and other entertainment companies, S&P has taken some 73 credit actions globally.
One analyst said that in this environment the analysts are updating their analysis on what seems like a day-to-day basis. Having a solid credit footing, especially now is important as it give companies a means to raise cash to help float their businesses during the shutdown.
S&P has changed the credit outlook on the Walt Disney Co. from “stable” to “negative,” while maintaining an A credit rating (a AAA credit rating is considered “Prime,” while BB+ through D is “Junk” territory). S&P changed its outlook on Disney before the company raised $6 billion through a debt offering, in order to offset the impact of the coronavirus.
In the TV broadcasters sector, S&P knocked ITV Plc.’s outlook to “negative” from “stable,” while maintaining a BBB- credit rating (lower medium grade), and Sinclair Broadcast Group’s outlook also to “negative” from “stable,” while maintaining a BB- credit rating (non-investment grade speculative).
“We’ve taken more than 25 ratings actions the past few weeks on companies in these sectors, and we believe there will be more coronavirus-related downgrades, negative outlook revisions, and ratings put on CreditWatch with negative implications,” S&P analysts wrote in a March 26 note.
S&P changed the outlook on Live Nation to a “credit watch negative,” while maintaining a BB- rating.
Hollywood’s cinema chains have been some of the hardest hit by the closures, delays and cancellations caused by the coronavirus pandemic. AMC Theatres, the nation’s largest cinema chain, has already furloughed 600 corporate employees, including CEO Adam Aron, after shuttering its theaters worldwide. The company is also dripping in debt, reporting a $5 billion-plus deficit at the end of 2019 and losses of $149 million for the year (after recording a $110 million profit in 2018).
“Film exhibitors have already felt immediate pain from the virus as theaters across the U.S. have been closed since mid-March. As a result, we’ve placed our ratings on all theater operators globally on CreditWatch with negative implications,” S&P’s note read. “AMC Entertainment has already reduced its [capital expenditure] and is highly leveraged at roughly 6x, which leaves the company with fewer levers to pull to respond to a severe decline at the box office.”
S&P changed the outlooks of AMC Theatres (B: Highly speculative), Cinemark (BB: Non-investment grade speculative), National Cinemedia (B+: Highly speculative) and National Amusements (B+) all to “credit watch negative” from “stable.”
Cineworld Group, the U.K. company that owns Regal Cinemas, maintained a “credit watch negative” outlook but had its credit rating cut to B from B+.
“The speed at which the Coronavirus has affected the global economy, especially the U.S., is astonishing. The rate at which we will take rating actions on the companies we cover in the global media and entertainment sector will depend on how quickly the coronavirus spreads globally and how severely it affects these companies,” S&P analysts wrote.
“We may need to downgrade many of these companies before the virus is contained,” the note read. “Given the volatility this pandemic has generated, and the pace of company announcements, ratings on more vulnerable companies (especially in the speculative grade category) could be subject to multiple ratings actions.”