The financial community is thumbs-up on Lionsgate’s $412.5M acquisition of Summit Entertainment. Lionsgate shares appreciated 6.3% since the companies announced the deal on Friday. And today Standard & Poor’s Ratings Services said it’s considering raising Lionsgate’s debt rating from its current ‘B-‘. The deal “modestly improves Lionsgate’s business risk profile, mainly on account of increased leverage over exhibitors and creative capabilities,” credit analyst Deborah Kinzer says. Don’t throw the confetti yet, though: Considering how volatile the film business is, and how much it costs to make movies, “we would most likely assess the combined company’s business risk profile as ‘vulnerable’ or ‘weak’,” she says. S&P won’t decide whether to raise the credit rating until it meets with management. “Key ratings considerations will include the combined company’s pro forma liquidity position, production strategy, and acquisition orientation under the new structure,” says Kinzer. Earlier today Miller Tabak & Co analyst David Joyce said that Lionsgate “could pay down the Summit related debt with cash flow from The Hunger Games and the upcoming Twilight: Breaking Dawn Part 1 home entertainment release and the theatrical and home entertainment releases of Breaking Dawn Part 2 in 1H15 if not earlier.”
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