Overview

In this commentary, we summarize the rating actions that S&P Global Ratings has taken so far on U.S. media and entertainment rated issuers stemming from the COVID-19 pandemic and subsequent global economic recession. Given the significant number of ratings on companies with negative outlooks or on CreditWatch negative, we also address some of the issues that could trigger additional negative rating actions for U.S. media and entertainment issuers. For more detail on the expected path to recovery for the media and entertainment industry, please refer to our companion commentary titled "Rebooting The U.S. Media Sector In A Post COVID-19 World."

How has the pandemic affected the media and entertainment industry?  The pandemic is affecting the global media and entertainment industry in two ways. First, the pandemic immediately affected all out-of-home entertainment companies because of social distancing and other measures taken by local governments such as mandated closures. This has affected live-events companies (sporting events, concerts, Broadway shows), travel-related companies, trade show and conference operators, theme park operators, film and TV studios, and movie exhibitors. Additionally, media companies exposed to advertising revenues such as digital publishers, television, radio, outdoor, and print-based media are also suffering from the accompanying economic recession, not from the direct impact of the pandemic itself.

What ratings actions has S&P Global Ratings taken thus far?  S&P Global Ratings has taken over 60 rating actions on companies within the U.S. media and entertainment sector since the pandemic began to affect the U.S. in February. Actions have included rating downgrades--some by multiple notches, outlook revisions to negative, and negative CreditWatch placements. Approximately 85% of our COVID-related rating actions have been on speculative-grade issuers, with approximately 65% on companies in the 'B' or lower rating categories. Although most of our media ratings continue to carry either 'B' or 'B-' issuer credit ratings (ICRs), because of our rating actions, the number of ICRs with 'B' ratings has dropped during this period, while the number of issuers with 'B-' ratings has risen. Approximately 12% of U.S. media and entertainment sector ratings are now 'CCC+' or below (compared to 8.3% pre-pandemic).

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In particular, the past few months have been a rocky ride for many media subsectors, with many negative rating actions.

• Local media (broadcast TV, outdoor, and radio) has been broadly affected by the economic recession as steep advertising revenue declines beginning in the first quarter of 2020 have impaired operating profit. We have taken 11 rating actions in this subsector, including nine downgrades and two outlook changes. The number of notches has varied within this segment, with ratings for three issuers falling into the 'CCC' rating category, including Beasley Broadcast, Urban One, and Salem Media.
• Travel-related companies have seen a sharp halt to global travel. Still, we have taken limited rating actions on companies with investment-grade ratings as we believe their strong liquidity positions will enable them to ride out this storm through the end of the year and into early 2021. In particular, we lowered ratings for Expedia by one notch to 'BBB-', and revised the outlook on Booking Holdings to negative. However, their speculative-grade counterparts are not in the same position, and we lowered ratings by two notches for Sabre Corp. to 'B+' and for Carlson Travel to 'CCC', whereas our ratings for GBT BV ('B+') were placed on CreditWatch with negative implications.
• We have taken rating actions for almost all of our live events issuers following the cancellations and indefinite postponements of concerts, sporting, and other live events because of the pandemic. In particular, we placed our ratings for Emerald Expositions on CreditWatch with negative implications and subsequently lowered it by one notch to 'B'. We also lowered ratings for Live Nation Entertainment Inc. by one notch to 'B+', and both Hoya Midco (Vivid Seats) and Pugnacious Endeavors (StubHub) by one notch to 'B-'.
• Finally, one of the hardest-hit subsectors within media has been the movie exhibitors for which we have taken a few multi-notch downgrades as theaters remain closed and timing of reopenings is uncertain. We lowered ratings for National Amusements Inc. to 'B-' from 'B+', for Cinemark by one notch to 'BB-', and for National CineMedia by one notch to 'B+'. We also lowered our ratings for AMC Entertainment to 'CC' from 'B-' after the company launched an exchange offer for its subordinated notes.

What have media companies done to bolster liquidity during the pandemic and ensuing business disruption?  Many media companies have taken actions to preserve and increase cash balances, as well as offset the impact of revenue declines given softer demand for advertising. Many issuers have placed new issuances of both secured and unsecured debt in order to shore up their liquidity positions (see Table 1). Other issuers have preemptively drawn down much or all of their revolving credit facilities to build cash balances to weather this crisis. Issuers have also enacted cost-cutting measures, as well as suspended shareholder rewards including dividend and share repurchases. However, taking steps to improve liquidity has not, nor will not always preclude negative rating actions, although doing so can sometimes prevent multi-notch downgrades.

Although we view debt issuance to shore up liquidity during this crisis as generally a positive for the majority of issuers, they may be saddled with higher debt levels following the end of the pandemic and resumption of business potentially with less volume and reduced cash flow to service and reduce this incremental debt. For issuers who use the cash to cover negative cash flows, their elevated leverage may result in credit metrics that take several years to return to 2019 levels, particularly if EBITDA does not fully rebound until 2022.

Table 1

Financial covenants also pose risks for weaker rated credits, although a number of media companies, including several with investment-grade ratings, have sought covenant relief and waivers from lenders in recent months. Some are short-term solutions, whereas others have addressed covenant issues more holistically. For example, Live Nation Entertainment recently amended its credit agreement to remove its net leverage ratio covenant test for the second and third quarters of 2020, and instead implemented a minimum liquidity test for those periods. In addition, the amendments allow for the second and third quarters of 2019 to be used as substitutes for their respective 2020 periods for future net leverage covenant tests starting in the fourth quarter of 2020. We continue to closely monitor potential inability of issuers to comply with financial covenants and lose access to revolving credit facilities as this pandemic evolves.

Table 2

Additional Distressed Exchanges And Bankruptcies Likely On the Way

While the U.S. media sector has thus far incurred two defaults (LSC Communications Inc. and Engine Holding LLC), neither were directly as a result of the pandemic. In addition, AMC Entertainment recently launched an exchange offer for its subordinated notes. We view the proposed transaction as distressed and, if completed, tantamount to a default because we believe noteholders will receive less than they were originally promised. Since 12% of media companies are rated 'CCC+' or below, we expect the number of distressed exchanges and bankruptcies to rise significantly.

More Ratings Changes Likely To Follow

Even following this significant rating activity, over 15 rated media companies remain on CreditWatch with negative implications. Indeed, currently close to 55% of media sector ratings have a negative outlook or remain on CreditWatch with negative implications. Prior to the start of the pandemic, nearly 75% of the rated media issuers had a stable outlook, versus about 43% as of May 31, 2020. Given the large number of issuers with negative outlooks or CreditWatch listings, it is likely more downward rating actions will occur in the coming months, particularly if the recovery occurs at a slower-than-expected pace.

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S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research

• Rebooting The U.S. Media Sector In A Post COVID-19 World, June 10, 2020
• The COVID-19 Fallout Is Squeezing U.S. Advertising Spending More Than Expected, May 21, 2020
• Credit Conditions North America: Pressures Persist, Risks Resound, April 23, 2020
• Economic Research: An Already Historic U.S. Downturn Now Looks Even Worse, April 16, 2020
• COVID-19 Increases Pressure On Global Media & Entertainment Ratings, March 26, 2020