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S&P Global Ratings already has placed Paramount Skydance’s credit rating in junk-status territory — indicating that the media conglomerate’s debt securities are considered speculative-grade. But if and when Paramount completes its megadeal for Warner Bros. Discovery, the credit-rating firm will take it down another notch.
Currently S&P Global has a “BB+” issuer credit rating on Paramount. On Wednesday, the firm said it will “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 Global defines the “BB” rating 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 net debt that Warner Bros. Discovery has on its books. That’s in addition the tens in billions of debt it is amassing to fund the merger itself. In April, Paramount restructured the financing for the deal, reducing its aggregate long-term debt commitments from $54 billion to $49 billion — but that still would leave the combined Paramount-WBD in a highly leveraged position.
According to S&P Global, its decision to lower the ratings by one notch post-merger comes as it projects the leverage ratio of Paramount-WBD “will remain elevated for the next two years and will only begin to improve in 2028.” S&P Global projects the merged company’s leverage ratio (adjusted debt to adjusted EBITDA) for 2026 will be 7.6x, and that it doesn’t expect that to drop below 5x until 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 Global said in its ratings 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 ratings firm said that all of Paramount-WBD’s key businesses “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 Global agrees with Paramount’s assessment that it can achieve more than $6 billion in cost synergies by merging with Warner Bros. Discovery.
However, “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 Global noted that the combined company includes the operations of six separate legacy companies: Time Warner, Discovery Communications, Scripps Networks, CBS, Viacom and Skydance, and that many of those operations “have only been partially integrated.”
Layoffs in the combined Paramount-WBD “will come largely from consolidation of the linear TV operations and the elimination of corporate overhead,” S&P Global said. In addition, the firm said it expects a significant portion of cost synergies will come from real-estate rationalization, “process improvements” and the consolidation of the companies’ direct-to-streaming services onto a unified technology platform.
In projecting declining revenue for PSKY-WBD’s linear TV business, S&P Global said it believes the company “will manage the linear TV business for margins, cutting content costs on an ongoing basis.” Its forecasts factor in “a significant step-up” in costs for NFL programming rights but also factor in “a corresponding reduction in other programming costs mitigating the negative impact to segment EBITDA.”
On Tuesday, Paramount Skydance announced an offer to exchange WBD’s junior-lien exchange notes for second-lien PSKY notes. S&P Global assigned a preliminary “BB” rating to Paramount’s proposed second-lien secured notes.
