Investing.com -- Pinewood Group Ltd., a U.K.-based film studio, has seen its outlook revised from negative to stable by S&P Global Ratings. This change was made due to the studio’s significantly improved EBITDA base, which rose to about £119 million over the 12 months ending Dec. 31, 2024, marking a 45% increase from the £82 million reported for the same period in 2023.
This rise in EBITDA has been attributed to successful portfolio expansion. Despite increased financing costs due to refinancing activities initiated last year, Pinewood is projected to end the fiscal year ending March 31, 2025, with an EBITDA close to £130 million. This figure supports an EBITDA interest coverage expected to remain at or exceed 1.8x over the forecast period.
The ’BB-’ long-term issuer credit rating on Pinewood and the ’BB+’ issue rating on the company’s senior secured notes were also affirmed by S&P Global Ratings. These ratings reflect a recovery rating of ’1’, with a 95% (capped) prospect of recovery.
The stable outlook reflects S&P Global Ratings’ expectations that Pinewood will maintain its credit metrics within the thresholds for the current rating. These include EBITDA interest coverage above 1.8x and debt to EBITDA of below 13.0x over the next 12 months.
Pinewood’s EBITDA base has expanded significantly, and it is anticipated that its cash flow generation will support EBITDA interest coverage at or exceeding 1.8x. This is in line with the current rating requirement.
In the 12 months ending December 2024, Pinewood’s adjusted debt reached £1.16 billion, broadly in line with the December 2023 position. This resulted in a significant improvement in debt to EBITDA, to 9.8x from 14.3x in the same period.
Pinewood’s EBITDA interest coverage is temporarily distorted by double interest from bonds which will be repaid in September 2025. In March 2024, Pinewood issued £750 million senior secured notes due in 2030. Part of the proceeds was used to repurchase £460 million of the £750 million senior secured notes due in September 2025 through a tender offer. The remaining proceeds from the bond issuance were invested in gilts with a maturity matching that of the 2025 notes.
Once repaid, interest costs are expected to improve by about £9 million annually, leading to an annualized EBITDA interest coverage comfortably above 1.8x. S&P Global Ratings’ interest calculation does not take any interest income into account.
Over the next 12 months, it is projected that Pinewood’s EBITDA interest coverage will improve to well above 1.8x, with debt to EBITDA remaining significantly below 13.0x. The outlook also takes into consideration the company’s financial policy of maintaining a reported loan-to-value (LTV) ratio below 50%. As of December 31, 2024, this stood at 32.4%.
S&P Global Ratings could downgrade Pinewood if the company fails to maintain EBITDA interest coverage sustainably above 1.8x, debt to EBITDA below 13x, or a reported LTV ratio below 50%. This could occur if Pinewood’s shareholders adopt a more aggressive financial policy, such as paying significant dividends.
The rating could also be lowered if Pinewood’s rental activities deteriorate, which could stem from weakened demand linked to a downturn in the media industry or changes in operating conditions that impact cash flows or occupancy levels.
Although an upgrade to Pinewood is viewed as remote, it could occur if shareholders adopted a financial policy that supports a higher rating, or if the company significantly diversifies its real estate portfolio with favorable operating fundamentals, supported by decreased asset or segment concentration and a larger and more diverse customer base.
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