Lions Gate Entertainment Corp. has also produced a windfall for its bond investors, along with shareholders, with the anticipation built around today’s release of the action film “The Hunger Games.”
The company’s $436 million of 10.25 percent notes maturing in November 2016 have risen 8.38 cents to 110 cents on the dollar this year, reducing the yield to 7.63 percent in the last trade yesterday. They traded for 101.6 cents on the dollar on Jan. 9, yielding 9.81 percent.
The independent film and television studio may pay off all of its long-term borrowings in one and one-half to two years, thanks to hits such as “The Hunger Games” and the “Twilight” films, said John Kornitzer, founder of Kornitzer Capital Management, which held some of the debt and 2.92 million shares of the Vancouver-based company as of Dec. 31.
“‘The Hunger Games’ has been a huge success,” said Kornitzer, whose company is based in Shawnee Mission, Kansas. “There’s no debt problem with this company.”
“The Hunger Games” took in $19.7 million in midnight showings today and is likely to produce one of the top weekend grosses of all time, according to researcher Hollywood.com.
The extra yield investors demand to hold the bonds rather than Treasuries has narrowed to 633 basis points from 953 basis points in January. A basis point is 0.01 percentage point.
About a third of the company’s $1.64 billion in total borrowings are tied to Summit Entertainment, producer of the “Twilight” films, which Lions Gate acquired in January for $412.5 million in cash and stock. Another third is film loans repaid when movies are released. The company also has $525.8 million in senior notes and revolving debt, and $106.2 million in convertible senior subordinated notes, according to a filing.
Lions Gate, the producer of cable TV’s “Mad Men” series, refinanced Summit’s existing debt with a term loan collateralized by that studio’s assets, Chief Executive Officer Jon Feltheimer said in a Feb. 10 conference call.
“We expect cash flows from them to eliminate this debt in less than three years,” Feltheimer said.
In addition to the “Twilight” and “The Hunger Games” films, the studio, run from Santa Monica, California, is releasing “What to Expect When You’re Expecting” starring Jennifer Lopez, Cameron Diaz and Chris Rock on May 18 and “The Expendables 2” with Sylvester Stallone in August.
With with Summit purchase, Lions Gate also gained rights to a series of science-fiction novels dubbed “Ender’s Game,” and is also working on a third potential film series based on the “Chaos Walking” books by Patrick Ness about teens trapped in warlike circumstances.
Lions Gate fell 0.1 percent to $14.53 at the close in New York. The stock has gained 75 percent this year.
“This company is going to deleverage remarkably fast,” said Matthew Harrigan, an analyst with Wunderlich Securities in Denver who recommends the stock.