S&P International Scores already has positioned Paramount Skydance‘s credit rating in junk-status territory — indicating that the media conglomerate’s debt securities are thought-about speculative-grade. But when and when Paramount completes its megadeal for Warner Bros. Discovery, the credit-rating agency will take it down one other notch.
Presently S&P International has a “BB+” issuer credit standing on Paramount. On Wednesday, the agency mentioned it’ll “lower the issuer credit rating on PSKY to ‘BB’ when its acquisition of WBD closes, assuming no material changes to the structure or terms of the transaction due to regulatory considerations, our view of the media ecosystem, or the company’s competitive position due to geopolitical factors or secular pressures.”
S&P International defines the “BB” ranking like this: “A BB credit rating indicates that an entity is less vulnerable in the near term, but faces major ongoing uncertainties. This rating reflects a speculative nature, suggesting that the entity may be more impacted by economic downturns or other adverse conditions. While BB-rated entities might currently manage their obligations, investors should be cautious due to potential volatility.”
With the WBD deal, Paramount will assume the roughly $30 billion in web debt that Warner Bros. Discovery has on its books. That’s as well as the tens in billions of debt it’s amassing to fund the merger itself. In April, Paramount restructured the financing for the deal, decreasing its mixture long-term debt commitments from $54 billion to $49 billion — however that also would depart the mixed Paramount-WBD in a extremely leveraged place.
In line with S&P International, its resolution to decrease the scores by one notch post-merger comes because it initiatives the leverage ratio of Paramount-WBD “will remain elevated for the next two years and will only begin to improve in 2028.” S&P International initiatives the merged firm’s leverage ratio (adjusted debt to adjusted EBITDA) for 2026 will likely be 7.6x, and that it doesn’t count on that to drop beneath 5x till 2029.
“We believe there is risk that deleveraging could be slower than forecast due to missteps in integrating and transforming the new company, an acceleration in secular trends, and geopolitical or macroeconomic factors,” S&P International mentioned in its scores advisory. “The history of the media and entertainment sector is fraught with large mergers that did not realize the anticipated benefits or took longer than expected to achieve synergies and integration.”
The scores agency mentioned that every one of Paramount-WBD’s key companies “face seismic challenges and an increasingly uncertain future. Consumers’ media consumption has become so fragmented that media’s cultural impact is weakened. And AI is accelerating the shrinking of the quality difference between certain professionally produced and user-generated content.”
S&P International agrees with Paramount’s evaluation that it could possibly obtain greater than $6 billion in value synergies by merging with Warner Bros. Discovery.
Nevertheless, the agency mentioned, “We would include these synergies only when they are realized and the costs to achieve them in our analysis, which will depress the company’s EBITDA and free cash flow primarily in 2026 and 2027.” S&P International famous that the mixed firm consists of the operations of six separate legacy firms: Time Warner, Discovery Communications, Scripps Networks, CBS, Viacom and Skydance, and that lots of these operations “have only been partially integrated.”
Layoffs within the mixed Paramount-WBD “will come largely from consolidation of the linear TV operations and the elimination of corporate overhead,” S&P International mentioned. As well as, the agency mentioned it expects a good portion of value synergies will come from real-estate rationalization, “process improvements” and the consolidation of the businesses’ direct-to-streaming providers onto a unified know-how platform.
In projecting declining income for PSKY-WBD’s linear TV enterprise, S&P International mentioned it believes the corporate “will manage the linear TV business for margins, cutting content costs on an ongoing basis.” Its forecasts consider “a significant step-up” in prices for NFL programming rights but additionally consider “a corresponding reduction in other programming costs mitigating the negative impact to segment EBITDA.”
On Tuesday, Paramount Skydance introduced a proposal to change WBD’s junior-lien change notes for second-lien PSKY notes. S&P International assigned a preliminary “BB” ranking to Paramount’s proposed second-lien secured notes.
Paramount and WBD have mentioned they count on the merger, which has an enterprise worth of almost $111 billion, to shut in September 2026. The deal is pending regulatory approval in Europe. As well as, a number of state attorneys common, together with California’s Rob Bonta, are reviewing the transaction and should resolve to problem it on antitrust grounds.
