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As TV Show Idles, Core in Need of Refinancing

NEW YORK (The Deal) -- Television production company Core Entertainment's performance has hit a sour note as its big hit, the song-performance show, "American Idol," loses popularity.

Core relies heavily on the success of the long-running singing competition, which accounts for 40% of the New York-based media company's revenues.

American Idol's viewership declined by 23% during the show's 12th season, and the January premiere of its 13th season was down 22% from the previous season's level. Audience ratings had already fallen by 29% in 2012.

Ratings agency Standard & Poor's is concerned about these factors, and said it believes the television producer may need to refinance its debt absent a decrease in leverage or the production of another breakaway hit show.

Core also owns the copyrights to albums produced by American Idol finalists, produces dance-off show "So You Think You Can Dance," and co-owns the rights to the name, likeness and image of Elvis Presley and Muhammad Ali.

S&P put the company's corporate credit rating of B on CreditWatch with negative implications on March 31, citing increased competition, eroding revenues and high leverage.

However, the TV producer may still have time for a comeback. Core should have "adequate" liquidity thanks to $31 million in availability under its $35 million revolving credit facility due in 2016 and some cash on hand, S&P estimated.

Core doesn't have near-term debt maturities - its two other loans come due in 2017 and 2018 - but S&P warned that those loans face "refinancing risks" due to the company's negative operating trends. If American Idol's ratings continue to decline at a normal rate of 10% to 15%, S&P estimates that the company will lose at least a high-single-digit chunk of its revenues.

"American Idol" fights for ratings with a host of other competition-style reality TV shows.

Another singing show, "The Voice," premiered in 2011, drawing away some of American Idol's viewers with a panel of judges that has included pop singers Shakira, Adam Levine, Usher and Christina Aguilera, as well as country star Blake Shelton.

"American Idol" has launched the careers of performers such as Kelly Clarkson, Carrie Underwood and Jennifer Hudson. The show features judges Jennifer Lopez, Keith Urban and Harry Connick Jr., but it achieved its highest popularity when Paula Abdul, Randy Jackson and Simon Cowell were the panelists.

Another alarming risk looms large, namely that the show's home network, Fox, could cancel it. If that happens, S&P said it may cut Core's rating to CCC.

Once a TV show is cancelled by a major network, it can be difficult to keep the franchise going.

Hollywood production firm Prospect Park Networks learned that the hard way when it purchased the license to reboot soap operas "All My Children" and "One Life to Live" online after major network ABC cancelled them.

Amid licensing disputes with ABC, Prospect Park filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware in Wilmington on March 10.

Changing trends and fickle viewers can be enough to push TV producers into bankruptcy, especially when their offerings are not diversified.

4Kids Entertainment, which produced English-dubbed versions of Japanese anime shows such as "Pokemon" and "Yu-Gi-Oh!", ran into financial trouble when viewership of its franchises declined and conflicts arose over its licensing agreements.

The company filed for Chapter 11 bankruptcy on April 6, 2011.

For diversified television producers with a lineup of thriving shows, dealmaking is within the realm of possibility.

Mark Burnett Productions Inc., which produces shows including "The Voice," "Survivor," "Celebrity Apprentice," and "Are You Smarter Than a Fifth Grader?" sold a 50% stake to media giant Hearst in 2007.

Core's intellectual property portfolio provides more stability than its television shows, S&P said in a Jan. 31, 2013, report, although the ratings agency warned that the rights to "American Idol" finalists' albums will become less valuable as the show loses its cache with viewers.

Core has a $200 million senior secured first-lien term loan due June 21, 2017, and a $160 million second-lien senior secured term loan due June 21, 2018, bearing interest at 13.5%.

The company's operating subsidiary, Core Media Group, has a $35 million senior secured first-lien revolving credit facility due June 21, 2016.

A Core Media spokesman didn't respond to requests for comment.

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