S&P Global on Monday downgraded CAA’s credit rating to “B” from “B+,” just as the talent agency raised $75 million in a new debt sale to add liquidity and cushion its balance sheet amid the ongoing novel coronavirus pandemic.
The downgrade doesn’t change much for CAA, still representing a highly speculative rating for the talent agency’s credit, but S&P did maintain a “stable outlook” on the company.
“The stable outlook reflects our view that CAA will maintain sufficient liquidity to service all of its debt obligations, including generating a [free operating cash flow]-to-debt ratio of at least 5% over the next 12 months,” S&P analysts wrote on Monday. “The outlook also reflects our view that volume of productions and live events, including sports and music, will gradually return to pre-pandemic levels toward the end of fiscal year 2020 into 2021, which will further improve the company’s credit measures over the next 12 months.”
CAA — like many companies across Hollywood and beyond, including its talent agency peers — has been hard hit by the pandemic, which has resulted in a number of events and productions core to CAA’s business being shut down.
Last month, CAA was among the many that was forced to cut pay for employees by up to 50% companywide, and CAA chiefs Richard Lovett, Bryan Lourd and Kevin Huvane said they would forego their salaries for the rest of the year. The drastic move was done in hopes of avoiding employee layoffs.
“Due to the coronavirus pandemic, major studios have indefinitely suspended the production of almost all TV and film projects. The outbreak has also led to the cancellation or postponement of multiple live events, including sports, music concerts, and festivals,” S&P analysts wrote. “The majority of CAA’s represented talent are being directly affected by these disruptions because they are not receiving compensation. This, in turn, prevents CAA from collecting its agent commissions, which leads us to anticipate that its credit metrics will be materially weaker than we previously expected in fiscal year 2020.
“We could lower our rating on CAA if the resumption of TV, film, and live event production is materially slower than we currently expect, leading to a sustained slowdown in the company’s revenue and earnings well into fiscal year 2021,” analysts continued. “This could reduce CAA’s [free operating cash flow] -to-debt ratio below 5% on a sustained basis, which would indicate elevated liquidity risks.”