Across the industry, the major conglomerates — including The Walt Disney Company, News Corporation, Time Warner Inc., Viacom Inc and CBS Corporation — are currently the best positioned to weather any crisis in the financial markets, as these companies benefit from strong and stable operating liquidity, meaningful amounts of capacity in the form of cash on hand and revolver availability, as well as longer-dated maturities.
While there are longer-term concerns for companies with significant amounts of debt and/or with operating challenges, Fitch does not expect large numbers of defaults over the near term, as most of these challenged companies do not have material maturities until after 2010. Companies generally accessed the capital markets during the recent favorable liquidity environment to extend revolver expirations and refinance bonds.
Although facing both cyclical and secular threats, the media & entertainment industry is characterized by relatively predictable revenue streams and high margins. High free cash flow conversion is supported by limited working-capital swings, low capital expenditure, and (sometimes) low cash taxes.
“These factors can make media companies attractive borrowers for banks and bondholders, even under more selective market conditions,” said Fitch Ratings senior director Mike Simonton.
In addition, while media asset portfolios do not provide ready access to liquidity, they often have components that are easily separable. Fitch believes the potential to deconsolidate media portfolios to pay down debt could further support creditors in a downturn.
Also, media companies that do have meaningful capital expenditures often have a high degree of discretion over that spending, where non-maintenance capital expenditures could be pulled back if needed to support their liquidity positions.
