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Why Cash on Hand Is King for Major Hollywood Companies

“The companies that will be hit the hardest are those that are highly leveraged,” analyst Tuna Amobi says

Hollywood is in preservation mode as main media and leisure firms scramble for money injections, refinancing and cost-cutting all in makes an attempt of weathering the monetary impacts of the rising unfold of the novel coronavirus.

On Friday, ViacomCBS introduced it deliberate to lift $2.5 billion in funds by a brand new debt providing, and vowed to offset anticipated income losses by cost-saving initiatives.

That transfer has change into well-liked amongst Hollywood’s heavy hitters with the means to take action. Earlier this week, Comcast raised $four billion by a debt providing, saying that it anticipated “the impact of COVID-19 could have a material adverse impact on our results of operations over the near-to-medium term.” And Disney final week raised $6 billion in a debt providing a day after alerting shareholders that it expects the coronavirus to have a major influence on its enterprise in quite a lot of methods.

“Companies in all industries, not just entertainment, are eager to have cash on hand right now,” Jon Giegengack, principal analyst with Hub Entertainment Research, mentioned. “So you see lots of companies drawing on credit lines or taking advantage of historically low interest rates to raise money.”

The world pandemic has posed a troublesome monetary hurdle for Hollywood firms, forcing film theaters and theme parks to shut, movie releases to be pushed, movie and TV productions to be placed on maintain and places of work to be closed. And that signifies that income that had been anticipated is not coming — placing a crunch on some extremely leveraged firms to keep up present bills, together with payroll.

S&P Global, in a roundup of coronavirus-related financial impacts on Friday, wrote that its analysts anticipate the leisure business to be one of many hardest hit, together with the journey and tourism, hospitality and retail. According to S&P Global analysts, the influence can have a drag on credit score demand and high quality.

As of March 26, S&P had already taken greater than 25 rankings actions on firms recognized as being probably the most weak throughout the media and leisure sector, which additionally contains occasion organizers, live-events firms, travel-related firms and film exhibitors.

While there’s a lot uncertainty concerning the pandemic’s full monetary influence, CFRA Research analyst Tuna Amobi mentioned firms like Disney and Comcast are finest positioned to emerge strongly.

“This is when a really diversified business and strong balance sheet are your friend,” Amobi mentioned. “Companies with a strong balance sheet are definitely going to try to leverage that. The companies that will be hit the hardest are those that are highly leveraged … what I see them doing is pulling the levers that they can to preserve liquidity.”

In the final two weeks, many leisure firms have made robust selections, furloughing and shedding workers as they scramble to chop prices and, as Amobi mentioned, “preserve liquidity.”

AMC Theatres, the nation’s largest cinema chain, this week furloughed 600 company workers, together with CEO Adam Aron, after shuttering its theaters worldwide. The firm can be dripping in debt, reporting a $5 billion-plus deficit on the finish of 2019 and losses of $149 million for the 12 months (after recording a $110 million revenue in 2018).

Without figuring out if there’s an finish to the pandemic in sight, Amobi mentioned the pandemic will probably damage some firms’ earnings for at the least the remainder of the 12 months, not simply the primary and second quarters.

Movie exhibitors should not alone. Hollywood expertise businesses, which depend upon the completion of offers for productions that are actually on hiatus, has rushed to shave prices. United Talent Agency reduce salaries for workers throughout the corporate. Paradigm furloughed roughly 100 staffers. And Endeavor, the debt-laden dad or mum firm of the WME company and Ultimate…

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