TORONTO – Credit ratings agency DBRS Morningstar announced Tuesday it has downgraded Corus Entertainment’s issuer rating to BB (low) from BB and also its senior unsecured notes to BB (low).
“The credit rating downgrades reflect DBRS Morningstar’s concerns that Corus’ near- to medium-term earnings will remain under pressure as a result of a contraction in advertising revenue affected by the confluence of several factors, including a softening economic outlook, strike activity (now resolved) affecting content creation, and an increasingly competitive entertainment landscape,” reads a DBRS Morningstar press release.
The agency, however, has changed all trends for Corus’s ratings to “stable” from “negative”. Back in April, DBRS Morningstar confirmed Corus’s issuer rating at BB, but changed the trend to negative from stable. At the time, the trend change reflected a concern that near-term earnings would be pressured by slowing economic activity, the release explains.
“DBRS Morningstar expects the challenging television advertising environment will likely persist through F2024 as advertisers moderate their ad-spend and consumers contend with the rising cost of living and higher interest rates,” the release says.
“In addition, the Writers Guild of America and Screen Actors Guild-American Federation of Television and Radio Artists strikes have severely affected the production of U.S. content, which will negatively affect operating results in the company’s seasonally strong first quarter. However, with the resolution of both strikes as of early November, DBRS Morningstar anticipates a full program schedule to return in H2 F2024.”
Although the prospect of new content and a full program schedule in the second half of 2024 is encouraging, Corus will face increasing competitive pressure from the proliferation of digital entertainment options available to consumers, DBRS Morningstar says.
“While Corus’ video-first strategy offers a strong slate of popular programs, access to specialty channels and a robust production slate of Canadian content that has international appeal, the rising cost of living, and an uncertain economic climate are causing consumers to be pickier with regard to their entertainment spend. Therefore, in order to reduce ad-spend friction, the Company must be able to provide advertisers with a seamless buying experience that is both effective and efficient across all linear and digital distribution channels,” DBRS Morningstar advises.
Corus’s recent financial woes, largely attributable to a soft TV advertising market, has led the media company to seek relief from its regulatory obligations. The CRTC proposed in October to alleviate some of those burdens on a temporary basis.
In its application for regulatory relief, Corus had noted that high inflation, its sub-$1 share price and its debt-to-liquid cash ratio reaching “unacceptable levels” after the company saw a 61 per cent free cash decline over the previous year have put it in a precarious position with rapidly declining profitability.
In October, Corus suspended its quarterly dividend to prioritize continued debt reduction.
As of midday Tuesday, its shares were trading at $0.54.
