Moody’s downgrades MGM, rates facilities Ba2

Moody's Investors Service said it downgraded Metro-Goldwyn-Mayer Inc.'s (MGM) corporate family rating to Ba2 from Ba1 and probability of default rating to Ba2-PD from Ba1-PD following the completion of the company's debt-financed acquisition of the majority portion of EPIX that it did not already own.

Concurrently, the agency assigned a Ba2 rating to the company's new senior secured credit facilities, consisting of a $1 billion revolving credit facility and a $850 million term loan A.

The transaction to acquire the remaining 81% stake of EPIX it did not already own from Viacom (50% ownership) and Lions Gate (31% ownership) was completed on May 11, 2017 for about $971 million or $855 million net of $116 million of cash held on EPIX's balance sheet. The transaction valued EPIX at almost $1.2 billion, the agency explained.

“Free cash flows have historically been stable and strong. However, we expect MGM to ramp up its investment in television production division which will consume a higher amount of capital through 2018 to build its TV content franchise and build EPIX, both to meet the unprecedented demand for television content,” Moody’s said in a news release.

“As a result, we anticipate that free cash flow will be negatively impacted for the near term and debt reduction will not ramp back up until 2019 and 2020.”

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