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Summit to pay out share of 'Twilight' profits to investors as it recapitalizes [Updated]

Summit Entertainment, the independent studio behind the "Twilight" movies, is seeking to recapitalize by raising $800 million of new debt that will be used in part to pay its first large dividend to investors.

The new financing will also help pay down debt and fund ongoing operations and future productions, as well as give the company more flexibility to make acquisitions. Issuing new debt in the current climate will allow the studio to recapitalize on more favorable terms than when it originally raised funds in 2007, people close to the matter said. 

Outside of annual distributions made for tax purposes, the planned dividend will be the first time Summit's stakeholders will receive a share of profits, which have primarily come from the studio's trio of "Twilight" blockbusters.

The total dividend could be as much as $200 million, people familiar with the matter said.

The "Twilight" movies, which have grossed $1.8 billion worldwide and driven the sales of DVDs and merchandise, represent one of Hollywood's most successful new franchises. That has undoubtedly prompted Summit's investors to push for a share of the profits.

The studio's largest stakeholders are Participant Media, the film financing and production company run by former EBay President Jeff Skoll, and private equity fund Rizvi Traverse Management.

Summit's proposed debt issuance was disclosed Wednesday by Wall Street ratings agencies Moody's Investors Services and Standard & Poors.

Both gave the studio's debt a rating of "B," which Moody's describes as "speculative" and "subject to high credit risk." S & P says companies with a "B" rating are "vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments."

[Update, 4:35 p.m.: Moody's rated Summit's proposed debt and overall "corporate family" a B1, but gave the company's "probability of default" a "notch lower" grading of B2.]

Summit said it plans to use the proposed $600-million seven-year loan and $200-million five-year revolving-credit facility to pay down existing debt from the $1 billion in debt and equity it raised in 2007 when it first launched as a full-fledged studio.

The studio's co-chiefs Rob Friedman and Patrick Wachsberger have said that they would consider buying other small entertainment companies or film libraries. They have also said they want to expand into television production through acquisitions or internal investment.

In its analysis, Moodys cited as its chief concern a question often asked in Hollywood: Can Summit maintain its successful track record after releasing the final "Twilight" movies in 2011 and 2012?

"We remain cautious about the sustainability of strong credit metrics beyond 2012," the Moody's analysis said, "given the end of the 'Twilight' franchise, uncertainty about a replacement franchise and the volatile nature of the company's business."

Future improvements or downgrades in the rating, Moody's added, will depend on the success or failure of its new films that will allow it to pay down debt at a faster or slower rate.

S&P said in it regards "Summit's business risk profile as vulnerable because of its narrow business focus, revenue concentration on one movie franchise, and earnings volatility from the timing of hit movie releases."

Summit, which was behind the 2008 Oscar winner "The Hurt Locker," has had only two strong box office performers outside of the "Twilight" movies -- last fall's Bruce Willis action movie "Red" and the 2008 Nicolas Cage science-fiction picture "Knowing" -- among a number of box-office disappointments. Those include the recent Sean Penn political drama "Fair Game" and last summer's environmental-themed comedy "Furry Vengeance."

-- Ben Fritz and Claudia Eller

 
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