Deluxe Credit Rating Cut

Bloomberg had an article published on August 29th about Ron Perlman and his company's loans to Deluxe.  It’s interesting reading, you can check it out here.

Here’s a choice quote:

The $605 million of loans to Deluxe Entertainment Services Group Inc., which Perelman controls through his MacAndrews & Forbes Holdings Inc., were quoted at 88 cents on the dollar Aug. 26, according to Markit. That compared with an average of about 98.3 cents for the broader market. Last week, Standard & Poor’s took the rare step of cutting Deluxe’s credit rating three steps, to a level that implies the production company is “currently vulnerable” to default.

Deluxe, which converted the blockbuster movie Titanic to 3-D, has struggled to keep up with the changing digital media landscape, and to survive must either persuade Perelman to inject more equity into the Burbank, California-based company or seek a waiver from its lenders, according to S&P.

A few things to keep in mind: 

  • Aside from operating a facility in Toronto, Deluxe owns two VFX companies, Encore and Method Studios.
  • Deluxe also owns Stereo D, which announced they were setting up a new studio in Toronto.

You can see how S&P ranks their credit ratings here. According to Wikipedia, credit ratings are used by investment professionals to assess the likelihood a companies debt will be repaid. The definition of a CCC rating is “An obligor is CURRENTLY VULNERABLE, and is dependent upon favourable business, financial, and economic conditions to meet its financial commitments.”

Here's a financial analyst taking about why S&P downgraded Deluxe's credit rating:

The article prompted some talk on Twitter:

It's always a good idea to keep informed about the companies that employ us.  I'm not a financial expert by any means, but it looks like Deluxe is having some financial issues.  I have no idea if this will trickle down to it's VFX companies (and the artists who work there) but you should keep your eyes open for any negative signs.