Alliance Atlantis Communications has made changes to its accounting policy that could cause the company to violate its bank covenants. An analyst explained that Alliance has announced a change in the way it will account for its CSI franchise. "It was concluded that the accounting treatment for the company's interest in the CSI franchise is joint venture accounting," Alliance said in a recent release. Alliance is Canada's largest movie production and distribution company and it produces the television show "CSI: Crime Scene Investigation" and "CSI: Miami." "What will change is strictly the timing of earnings recognition, which will be reduced for past years and increased in future years," the company added.
Moody's Investors Service placed Alliance's Ba1 senior secured credit rating under review for possible downgrade due to concerns over the accounting change. The Toronto-based company currently has a C$500 million facility due 2006 and a C$25 million revolver. Royal Bank of Canada and TD Securities lead the company's existing bank debt. Moody's states that Alliance's business is stable and it is likely that any possible breach would be waived by its bank syndicate, but there is still the risk of a negative decision that would affect the company's liquidity.
Judson Martin, senior executive v.p. and cfo of Alliance, declined to comment. TD and RBC bankers did not return calls.