MUMBAI: With the box-office success of both The Expendables and The Last Exorcism, the debt rating of Lionsgate has risen from stable to positive.

The Vancouver-based mini-studio‘s recent debt reduction, courtesy of a July senior subordinated notes-to-equity conversion has activist shareholder Carl Icahn in a sense of quandry.

"While Moody‘s remains cautious regarding the inherent and significant volatility of the theatrical production business and the negative cash flow in recent years, the company‘s growing investment in both film, and particularly the upfront investment in television programming, is expected to generate improving operating profits and free cash flow over the next few years," said rating agency Moody, which rates Lionsgate debt at B2 in a statement.

The ratings agency also agreed to the uncertainty surrounding Lionsgate from its high-profile fight with Icahn and added, "A material change in the direction of the company that does not balance the interests of both equity and debt holders and that increases credit risk, could cause a reversal of the positive outlook or put downward pressure on the rating."