S&P Global struck again at the showbiz sector, this time at distressed cinema advertising, putting National Cinemedia and Screenvision on credit watch negative as movie theaters are shuttered and advertising at risk.
Ratings agencies like S&P Global, Moody’s and Fitch can be quiet for years and are rarely public facing – but they emerge in force during financial crises like the one the world is suffering now thanks to the coronavirus spread. Their ratings indicate how creditworthy a company is, how likely it is to default, and the odds of lenders getting paid back. Companies with high debt and debt payments due are particularly vulnerable to economic shocks since they might lack cash in a crisis to meet payments, triggering default. A bad credit rating makes it much more expensive for a company to borrow money. Companies can often renegotiate with current lenders for extensions or better terms. But a bad credit rating makes it much more expensive for a company to borrow money.
On NationalCinemedia, S&P said theater attendance will decline significantly in 2020 as movie releases are delayed and theaters are closed due to the coronavirus, Its CreditWatch placement “reflects expectation that the spread of the coronavirus will hurt theater attendance over the next few months due to closures and limitations on the size of public gatherings. At the same time, we expect declines in consumer spending stemming from the spread of the virus to cause declines in national advertising spending. We believe this combination will result in significantly lower EBITDA and cash flow in 2020 for National Cinemedia, which is paid by advertisers based on the number of impressions they can deliver.”
The ratings agency has pretty much the same judgement on Screenvision.
Screenvision is majority-owned by Boston-based private equity firm Abry Partners. Publicly traded National Cinemedia is a venture between AMC Entertainment and Regal (a subsidiary of U.K.theater chain Cineworld).
S&P isn’t downgrading the companies’ credit ratings just yet but monitoring them closely. It said it will refine its decision as it gets “additional information on the length of theater closures, potential updates to the film release slate, and the effects on national advertising spending related to the coronavirus. We also plan to continue discussions with management to monitor the severity of the impact and what mechanisms it’s using to offset the negative impact of the pandemic on the company’s liquidity.”