Metro-Goldwyn-Mayer Inc. Outlook Remains Negative; 'B+' Rating Affirmed

  • U.S.–based Metro-Goldwyn-Mayer Inc. (MGM) has delayed the release of its latest Bond film, and has announced production delays for some of its television series due to the negative impacts from COVID-19.
  • We expect the company's leverage will remain elevated and its cash flow will remain negative in 2020 before significantly improving in 2021 as a result of these delays and timing shifts in production.
  • We are affirming all our ratings on MGM including our 'B+' issuer credit rating. The outlook remains negative.
  • The negative outlook reflects the risk that the company's leverage could remain elevated and its cash flows could remain negative through 2021 due to worsening production delays due to COVID-19 or lower-than-expected profitability for the company's film, television, and media networks segments.
CHICAGO (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions above.
The coronavirus has delayed MGM's film and television segments, pushing out theatrical releases and television production.  The company recently decided to delay the release of "No Time To Die", the 25th installment in the James Bond franchise, for a second time. The film was scheduled to premiere in April 2020, but is now scheduled to be released in theaters in November 2020 due to the anticipated low attendance at the box office during the COVID-19 outbreak in early 2020. In addition, MGM has announced that a number of its television programs, both scripted and unscripted, are delaying production through the middle of 2020 in response to COVID-19 and concerns over the safety of production staff. We acknowledge that these decisions are prudent, but MGM's revenue, profitability, and cash flows will fall substantially below our prior expectations for 2020. However, we also expect most of the negative impact will be offset by better than previously expected performance in 2021 due to these timing shifts.
The negative outlook reflects the risk that the company's leverage could remain elevated and its cash flows could remain poor through 2021 due to worsening production delays due to COVID-19 or lower-than-expected profitability for the company's film, television, and media networks segments. Any underperformance in MGM's television deliveries and film studio, particularly Bond 25, could lead to further delays in operating cash flow (OCF) generation and the company's ability to dramatically reduce leverage in 2021. Additionally, a downgrade could occur if the company fails to generate significant return on investment in its content investments, especially EPIX, which could delay a return to profitability for its media networks segment.
We could lower the rating if we don't expect the company to reduce leverage below 4.75x or generate OCF to debt above 10% by the middle of 2021. This could happen if the television business does not grow as expected, the revised strategy for EPIX does not result in substantially improved cash flow, or if Bond 25 is further delayed or does not perform in line with prior releases.

We could revise our outlook back to stable if MGM executes its strategy and we are confident it will decrease leverage below 4.75x and grow its OCF to debt above 10% on a sustained basis. This would likely occur if MGM successfully releases Bond 25 in November 2020, generates healthy cash flows in its TV segment, and successfully improves cash generation at EPIX.
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