Hudson Pacific slapped with ratings downgrade before actors’ strike

Hudson Pacific Properties’ credit rating was cut by Moody’s earlier this week, just days before the union representing more than 160,000 film and television actors voted to go on strike, adding more pressure on the firm’s studio operations. 

Moody’s downgraded Hudson Pacific’s preferred stock rating to Ba3 from Ba1 and its senior unsecured debt rating to Ba1 from Baa3, according to a release this week. 

The ratings agency issued the downgrade in light of the ongoing screenwriters’ strike — which both Moody’s and Hudson Pacific have said is affecting studio revenues — and lackluster leasing across its office portfolio. SAG-AFTRA, which represents actors, joined the writers’ actions this week.

In its report, Moody’s said it does not expect Hudson Pacific’s cash flow to cover operating expenses, leasing capital spending and upcoming debt maturities. 

“As a result, Hudson Pacific will have to rely on asset sales and the revolver to cover the deficit,” Moody’s said in its release.

In its own review of Hudson Pacific, Fitch Ratings did not change its credit ratings of the company, but expressed “near-term concerns” about its studio business in light of the strike and the company’s high exposure to technology and media companies. 

Assuming the writers’ strike lasts six months, Fitch Ratings said it expects Hudson Pacific’s net operating income on its studio business to drop $18 million in 2023 compared to 2022. Any further drop in production — what will happen with the actors’ strike — will affect the business more. 

In May, the Writers Guild of America, which represents 11,500 writers, voted to strike — a result of an ongoing labor dispute between the guild and the Alliance of Motion Picture and Television Producers, which represents major production companies such as Universal Pictures and Netflix.

During the first two weeks of July, no permits for scripted TV were issued in L.A. County, according to FilmLA. 

“The strike will impact our entire studio business,” CEO Victor Coleman said on a call in May discussing the firm’s first quarter earnings.

In an investor presentation last month, Hudson Pacific said most of its studio revenues are tied to multi-year agreements. However, revenues from its subsidiary Quixote Studios, which it bought for $360 million last year, are more likely to fluctuate, given its services are contracted on a “show-by-show basis.” 

Hudson Pacific is exploring “various cost-cutting measures” and is looking to boost other revenue streams “less likely” to be impacted by the writers’ strike — like signing deals for reality TV shoots on location, live events and commercials, according to the presentation.