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Rating Action: Moody's assigns Ba3 to AMC Networks' proposed notes issuance
Global Credit Research - 25 Jan 2021
New York, January 25, 2021 -- Moody's Investors Service ("Moody's") assigned a Ba3 rating to AMC Networks Inc.'s (AMC) proposed $500 million senior unsecured notes issuance. The notes will be guaranteed on a senior unsecured basis by AMC's existing and future domestic restricted subsidiaries and will be subordinated to the company's senior secured credit facilities. Use of proceeds will be used to redeem the company's outstanding 4.75% senior unsecured notes due 2022 as well as a portion of the company's 5% senior unsecured notes due 2024. The new notes rank pari passu with the company's remaining existing senior unsecured notes, which include $900 million (proforma for the paydown) 5% notes due 2024 and $800 million 4.75% notes due 2025. All other ratings including the company's Ba2 corporate family rating (CFR) remain unchanged.
..Issuer: AMC Networks Inc.
....Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD4)
AMC's Ba2 CFR reflects its strong and stable cash flow driven by profitable television networks with long operating histories and extensive distribution throughout the US and internationally. The broad reach of its cable networks, combined with the company's proven ability to deliver consistently high quality and widely appealing entertainment content that generate high viewer ratings and appeal to advertisers and distributors, allows the company to obtain lucrative affiliate fees and advertising rates. AMC's distribution revenue represents approximately 68% of total revenue, of which recurring revenue streams from contractual consignment affiliate fees paid by pay TV providers represents the largest component. While we expect credit metrics will weaken through Q1 2021 to reflect a full year of business disruptions from COVID-19, the company's very good liquidity supported by continuing free cash flow, cash on hand and no near-term maturities allow for flexibility to manage through the crisis.
AMC's credit profile incorporates risks associated with the secular decline in traditional linear pay television distribution and the risks related to its ability to successfully transition to video-on-demand direct-to-consumer. It also incorporates the risk of customer and revenue concentration and a highly competitive environment in which programming drives viewership, subscriptions and advertising revenues. The company is also impacted by event risk concerns as the company's controlling owner, the Dolan family, has historically been comfortable with high leverage and transformative events. These risks remain balanced by the company's strong track record in programming creation and selection, as well as a solid balance sheet and cash flow generation. The company also has a strong liquidity profile as indicated by its SGL-1 rating and demonstrated by its significant cash balance of over $1 billion in cash and an undrawn revolver of $500 million.
The stable rating outlook reflects our expectation that the company will continue to invest in high quality programming and to pace the decline in linear TV distribution of the company's networks with its transition to direct to consumer video-on-demand growth. We anticipate that overall operating performance will be supported by increasing digital and international revenues, along with cost controls and relative stability in traditional revenue streams. Weakness in the company's advertising business as well as increased costs for ramping up production and expanding the streaming business will unfavorably impact credit metrics in the near-term. However, once the economy begins to recover, we believe AMC will be on track to deleverage gross debt-to-EBITDA (with Moody's standard adjustments) to under 3.5x, and will use cash to deleverage if necessary. Until that time, the company remains weakly positioned for its credit ratings. The outlook also incorporates our view that AMC will continue to generate good free cash flows and maintain a solid liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of the company's CFR could occur if management demonstrated and made a commitment to a fiscally conservative capital structure on a sustained basis and if debt-to-EBITDA leverage is sustained at or below 2.5x (including Moody's adjustments). The rating could be downgraded if management does not deleverage the company back to under 3.5x after COVID-19 crises, or if the company funds returning capital to equity investors and as a result sustains leverage above 3.5x (including Moody's adjustments) excluding the temporary impact from COVID-19. A significant debt funded acquisition could also impact the rating. A view that values were materially diminishing for cable networks and/or any potential damage to the AMC brand in particular, subscriber loss levels trend upward without an offsetting improvement in streaming revenues and reduction in debt and leverage, or a more constrained liquidity profile, could also put downward pressure on the company's ratings.
With its headquarters in New York, New York, AMC Networks Inc. ("AMC") supplies television programming to pay-TV service providers throughout the United States. The company predominantly operates five entertainment programming networks - AMC, WE tv, IFC, Sundance TV and BBC America. Revenues for LTM 9/30/2020 were approximately $2.8 billion.
The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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Neil Begley Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lenny J. Ajzenman Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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