Moody’s rates Lions Gate debt ‘high credit risk’

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Carl Icahn would love this one.

One of Wall Street’s biggest credit-rating agencies is warning investors that Lions Gate Entertainment is a risky bet. Moody’s Investors Services today gave a grade of B1 to the $200 million of secured notes that the independent studio recently announced it is issuing.

The agency says (registration required) that B ratings are ‘considered speculative and are subject to high credit risk.’

Moody’s gave the overall company a slightly worse rating of B2.

B ratings are far from Moody’s lowest grade, but represent significant concern about the rated company’s business. In its statement, Moody’s said the rating reflects ‘the inherent volatility of the theatrical production business and the lackluster performance of Lions Gate’s film slates over the past several years.’ The agency also expressed concern that even if the studio does return to profitability in its 2010 fiscal year, as expected, it will still be highly leveraged and continue to burn through cash to pay its debt until the next year.

Moody’s didn’t only have bad news for Lions Gate, however. It noted that the company could still be an attractive acquisition target, stating that it has ‘significant perceived value.’ The agency also said it has ‘reasonable confidence that profitability will improve in the coming years as [Lions Gate] refocuses its film slate on niches that have proven profitable ... in the past, and as TV program syndication revenues begin to flow due to the popularity of such shows as ‘Weeds’ and ‘Mad Men.’’

While its television revenues have been growing, Lions Gate’s movie business has struggled lately. In the quarter ended June 30, theatrical revenue plunged 26%, while home entertainment revenue was down 6%.

-- Ben Fritz