Starz Entertainment Corp (STRZ) Risk Analysis

Compliance with the reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act, will place significant demands on Starz's management and administrative and operational resources, including accounting resources, some of which were previously supported by Old Lionsgate's management. Moreover, to comply with these requirements, it is anticipated that Starz will need to migrate certain of its systems, including information technology and human resources systems, implement additional financial and management controls, reporting systems and procedures and may need to hire additional legal, accounting and finance staff. It is expected that Starz will incur additional annual expenses related to these activities, and those expenses may be significant. Starz is in the process of creating its own, or engaging third parties to provide, accounting, reporting, and other management systems to support its critical business functions in order to enhance or replace those systems provided to it by Old Lionsgate. Any inability to implement the new systems and transition data successfully and cost-effectively could disrupt Starz's business operations and adversely impact its profitability. If Starz is unable to upgrade its financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, its ability to comply with its financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on Starz's business, financial condition, results of operations and cash flow.

Starz has $625.1 million of indebtedness and $90.1 million of programming related obligations for the licensing of film and television programs as of June 16, 2025. Starz may also incur additional indebtedness and programming related obligations in the future. This amount of debt could potentially have important consequences to Starz and its debt and equity investors, including: - requiring a substantial portion of its cash flow from operations to make interest payments;- making it more difficult to satisfy its current debt service and other obligations;- increasing its vulnerability to general adverse economic and industry conditions;- reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business;- limiting Starz's flexibility in planning for, or reacting to, changes in its business and the industry;- placing Starz at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and - limiting Starz's ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase Starz common shares. To the extent that Starz incurs additional indebtedness, the foregoing risks could increase. In addition, Starz's actual cash requirements in the future may be greater than expected. Its cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and Starz may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance its debt. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources." Starz's indebtedness may make it difficult for it to satisfy its financial obligations, including making scheduled principal and interest payments on its indebtedness and its other obligations; limit its ability to borrow additional funds, if needed, for working capital, capital expenditures, acquisitions or other general business purposes; increase its cost of borrowing; limit its ability to use its cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes; require it to use a substantial portion of its cash flow from operations to make debt service payments when due; limit its flexibility to plan for, or react to, changes in its business and industry; place it at a competitive disadvantage compared to its less leveraged competitors; and; increase its vulnerability to the impact of adverse economic and industry conditions, including changes in interest rates and foreign exchange rates.

The agreements governing Starz's corporate indebtedness contain a number of restrictive covenants that impose operating and financial restrictions on Starz and limit its ability to engage in acts that may be in its long-term best interest, including restrictions on its ability to: incur, assume or guarantee additional indebtedness; issue certain disqualified stock; pay dividends or distributions or redeem or repurchase capital stock; prepay, redeem or repurchase debt that is junior in right of payment to the debt under such agreements; make loans or investments; incur liens; restrict dividends, loans or asset transfers from its restricted subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries and sale/leaseback transactions; consolidate or merge with or into, or sell substantially all of its assets to, another person; enter into transactions with affiliates; and enter into new lines of business. In addition, Starz's senior secured revolving credit facility requires Starz to maintain specified financial ratios. Starz's ability to meet those financial ratios can be affected by events beyond its control, including the effects on its business from, for example, global pandemics, wars, recessions, tariffs and related government actions and consumer behavior; as such, Starz may be unable to meet such financial ratios. A breach of the covenants under the agreements governing Starz's corporate indebtedness, or nonpayment of any principal or interest when due thereunder, could result in an event of default under the applicable indebtedness. Such a default may allow creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. Furthermore, if Starz is unable to repay the amounts due and payable under any such agreement governing its corporate indebtedness, secured lenders thereof could proceed against the collateral granted to them to secure such indebtedness. In the event Starz's lenders or noteholders accelerate the repayment of its indebtedness, Starz and its subsidiaries may not have sufficient assets to repay such indebtedness.

As a result of changes in the media and entertainment industry and their impact on Starz, Starz has restructured its operations. For example, in the fiscal year ended March 31, 2023, Starz began a plan to restructure its international LIONSGATE+ business, which included the over-the-top distribution of Starz's LIONSGATE+ branded premium subscription video services outside the U.S. and Canada. In connection with these restructuring activities, Starz performed a strategic review of content performance across all its platforms both in the U.S. and international territories, resulting in certain programming being removed from those platforms and written down to fair value. Starz incurred impairment charges from the inception of the plan through March 31, 2025, amounting to approximately $457.0 million which were reflected in net income (loss) from continuing operations (impairment charges from the inception of the plan through March 31, 2025, included in discontinued operations amounted to approximately $476.4 million). Changes in macroeconomic conditions, changes in consumer behavior and consumer consumption levels of our content may result in further restructurings and may further impair the value of Starz assets. When these changes or events occur, Starz has historically needed and may in the future need to write down the value of its assets, including further write downs of programming content, net, which has a balance of $1,096.3 million as of March 31, 2025. As of March 31, 2025, the carrying value of Starz's definite-lived intangible assets, including customer relationships associated with U.S. MVPDs, including cable operators, satellite television providers and telecommunications companies was $816.0 million. The asset group including amortizable intangible assets is tested for impairment whenever events or changes in circumstances (triggering events) indicate that the carrying amount of the asset may not be recoverable. For the fiscal year ended March 31, 2025, no indicators of impairment were identified. For the fiscal year ended March 31, 2024, due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption, we performed an impairment analysis of the amortizable intangible assets due to changes in the industry related to the migration from linear to OTT and direct-to-consumer consumption. Based on Starz's impairment analysis, the estimated undiscounted cash flows exceeded the carrying amount of the assets and therefore no impairment charge was required. Should a review indicate a write down to fair value is required, any such charge could be material to Starz's reported net earnings in a given reporting period.