Moody’s recently downgraded the credit rating of Hudson Pacific Properties, adding more pressure to the firm’s studio operations just days before the union representing over 160,000 film and television actors voted to strike. The downgrade included a reduction in Hudson Pacific’s preferred stock rating from Ba1 to Ba3 and a decrease in its senior unsecured debt rating from Baa3 to Ba1, as reported this week.
Moody’s decision to downgrade the ratings was influenced by the ongoing screenwriters’ strike, which both Moody’s and Hudson Pacific have acknowledged as impacting studio revenues, along with lackluster leasing performance in their office portfolio. SAG-AFTRA, the actors’ union, joined the writers’ strike actions this week.
According to Moody’s report, the agency does not anticipate Hudson Pacific’s cash flow to be sufficient to cover operating expenses, leasing capital spending, and upcoming debt maturities. As a result, Moody’s stated in their release that Hudson Pacific will have to rely on asset sales and its revolver to cover the deficit, according to a report in The Real Deal.
Fitch Ratings, in their own assessment of Hudson Pacific, expressed “near-term concerns” about the studio business due to the strike and the company’s significant exposure to technology and media companies. However, Fitch Ratings did not make any changes to the company’s credit ratings. If the writers’ strike continues for six months, Fitch Ratings estimates that Hudson Pacific’s net operating income from its studio business will decrease by $18 million in 2023 compared to 2022. The impact on the business will be more significant if the actors’ strike further reduces production.
The Writers Guild of America, representing 11,500 writers, voted to strike in May due to an ongoing labor dispute with the Alliance of Motion Picture and Television Producers, representing major production companies. This resulted in a halt to scripted TV permits in Los Angeles County during the first two weeks of July, according to FilmLA.
Hudson Pacific’s CEO, Victor Coleman, mentioned in a call discussing the firm’s first-quarter earnings that the strike would have an impact on their entire studio business. In an investor presentation earlier this year, Hudson Pacific revealed that most of its studio revenues are tied to multi-year agreements. However, revenues from its subsidiary, Quixote Studios, which was acquired for $360 million last year, are more likely to fluctuate since its services are contracted on a “show-by-show basis.”
To mitigate the effects of the writers’ strike, Hudson Pacific is exploring various cost-cutting measures and seeking to boost other revenue streams that are less likely to be impacted, such as signing deals for reality TV shoots on location, live events, and commercials, as mentioned in the investor presentation.
