Morningstar DBRS has downgraded Corus Entertainment’s credit rating, placing its senior unsecured notes in the “CCC” category, denoting speculative or junk grade, and a high level of default risk. Its recovery rating was also downgraded to RR5 from RR4 as the global credit rating agency continues to express concerns about the company’s liquidity position.
The agency says those concerns, in part, are based on the higher seasonal working capital required to secure programming for the upcoming season and continued pressure on operating results, reflecting “secular headwinds” or a dampened environment for long-term growth.
Corus announced earlier this month, it had amended its credit agreement in the face of more than $1 billion in outstanding debt, securing a 4.75 debt to cash flow ratio extension with its bank group, led by RBC Capital Markets and TD Securities. The extension buys the company some breathing room until mid-October. Morningstar DBRS has maintained Corus’ “Under Review with Negative Implications” status, pending the company’s ability to negotiate a more permanent secured credit agreement, and the ongoing possibility of a debt-restructuring event over the next year.
As of the company’s third quarter, ended May 31, Corus had $67 million in cash available on its balance sheet and approximately $30 million available under its secured credit facility. Morningstar DBRS is predicting Q4 cash flow to be modestly negative, reflecting continued weakness in operating results and incremental payments related to cost-cutting.
With an estimated $30 million available through the secured revolving credit facility to mid-October, Morningstar DBRS believes that “relatively modest level of liquidity may impinge on the company’s ability to invest in new programming in the seasonally heavy first fiscal quarter of 2025.”
“In addition, the loss of several Warner Bros. Discovery, Inc. specialty channel brands, including HGTV and the Food Network, is expected to create additional uncertainty around Corus’ programming supply. Morningstar DBRS believes securing new lifestyle content to add to the existing Canadian content may place added pressure on Q1 F2025 cash flow as these re-banded channels are expected to launch on January 1, 2025,” the agency stated, while acknowledging Corus’ efforts to mitigate revenue declines with cost-cutting initiatives, including a 25% workforce reduction from 2023.
“Additionally, as a result of station rationalization, the company is looking to sell surplus real estate in several urban centres across Canada, however, the closing dates and ultimate values of these transactions are uncertain and likely counted in months not weeks,” the agency said.
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