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David Ellison moved mountains and fought off many detractors in his quest to acquire Warner Bros. Discovery. Now, as the transition is set to formally close on Oct. 6, the high-wire act is about to begin.
The enlarged
entity, to be known as Skydance, will carry a nearly unprecedented level of debt for a large media M&A transaction — a nearly $80 billion chunk — and that leverage will weigh on virtually every decision the company makes over the next three years. By comparison, when Discovery bought WarnerMedia from AT&T, it assumed $43 billion of AT&T’s debt, leaving the new WBD with about $53 billion in gross debt as of June 2022.
Skydance has a tight runway through the end of 2029 to significantly pare down the long-term debt on the company’s books. If Skydance doesn’t hit some very specific targets laid out in its agreements with lenders for reducing its overall leverage ratio, Larry Ellison, the software billionaire and the father of the Skydance CEO, will be on the hook to make up the difference out of his personal wealth.
Analysts from three major credit ratings agencies — Moody’s Ratings, S&P Global Ratings and Fitch Solutions’ CreditSights — say the company is walking a tightrope of having to manage a difficult post-deal integration process at a time when the entertainment landscape continues to evolve in unpredictable ways. Skydance is counting on several things to go right for its key units — from Paramount Pictures and Warner Bros. to HBO Max and Paramount+ to CNN and CBS — while it also faces competitive pressure to invest big in content and improved technology for the aging infrastructure at the legacy Paramount and Warner Bros. in particular.
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Barring a box office miracle or windfall of streaming subscribers in the coming months, Skydance is projected to operate for all of 2027 with negative cash flow — which will make it harder to be opportunistic in the marketplace. It’s not an impossible feat. But it will require enormous discipline across the organization to focus on priorities and, most importantly, new pipelines for profit.
“They need to move as quickly as possible to get this leverage down,” says Jawad Hussain, managing director at S&P Global Ratings. “While 2027 is not going to have any cash flow, if [Skydance] does this quickly enough, then by 2028 you’re starting to make money and you can then start paying down your debt. And then in ’29 it can get better. That’s the time frame that they have to do it in.”
The company has committed to achieving $6 billion operational savings over three years. That process will be hard on the organization as much of it will come from staff cuts to address overlapping operations and redeployment of resources.
“Until you own the asset, you can’t necessarily fully know what you need to do,” Hussain says. “I would say post-Q3 into the end of the year, and then early next year when they report Q4, we’re hoping to see a nice layout of the strategy and the timelines around that.”
Robert Fishman, senior analyst for MoffettNathanson Research, also sees Skydance leaders operating in a tough environment of balancing the need to grow the streaming engines — HBO Max and Paramount+ — without starving the linear channels that still generate the majority of the company’s cash flow.
“The company is going to be forced into choosing where to invest their dollars, led by streaming,” Fishman says. “And they need to make sure that the cash flows they’re shifting toward are not going to be to the detriment of the overall company’s cash flows.”
The transaction that saw the smaller Paramount Skydance take over the larger WBD was enabled through Byzantine financing structures and a consortium of debt partners that include Middle East sovereign wealth funds.
The debt piled on to the new company’s balance sheet has sparked intense scrutiny in business and geopolitical circles, although Skydance has consistently assured leaders and Wall Street that the foreign entities will have no governance role or operational influence on the company.
For media biz analysts, the big question that is unanswerable in the short term is how David Ellison and his newly recruited co-CEO Ynon Kreiz can make the merger math work. In the view of S&P Global’s Hussain and others, the Skydance deal is putting together two media giants that were already struggling to generate consistent profit and cash flows given all the outside pressures in the marketplace.
“Paramount itself was generating a little bit of cash flow. Warner Bros. was generating some cash flow — but they both had their issues,” Hussain observes. “So this has been the big issue for a lot of these legacy media companies. We already saw this with Discovery and Warner Bros. merging [in 2022]. We saw this with Viacom and CBS merging [in 2019] They’ve had a go at it. So the question is: why is this time going to be different?”
Jason Cuomo, senior VP in the corporate finance group for Moody’s Ratings, believes it will take time before investors can really measure the potential of the company. In that sense, the backstop of Larry Ellison’s extraordinary resources is seen by many as the only way that the deal could be completed given how much is at risk. Moody’s has rated Skydance’s debt overall at Ba3, which is one notch below investment grade. That investment rating means the company pays higher interest rates in most cases for the credit facilities and short-term borrowings that are a normal course of business for large enterprises.
“It’s a massive company that is going through a multiyear restructuring. That’s going to mean a lot of disruption and a lot of change at the highest levels,” says Cuomo.
“A key support for the credit profile is the controlling shareholder’s [the Ellison family] commitment to backstop the company’s target leverage at the end of 2028 and 2029. If that commitment wasn’t there, our view of this credit profile and the risk would be greater. It effectively will reconcile the divide between what the company hopes to achieve in two to three years and what the commitment is. They’re committed to close that gap. That is one of the material risks that exist.”
S&P Global and CreditSights give Skydance slightly higher ratings that push them over the edge into investment grade territory that was essential for a company shouldering so much debt. S&P Global and others calculate Skydance in 2026 and 2027 as having a debt-to-earnings ratio of 7. The goal is to chop that down to 3 or less by 2029.
Hunter Martin, senior analyst for telecom, media and cable for CreditSights, says the Street will be watching the company’s financial performance closely. But he echoes Cuomo’s view that it will be impossible to tell after just a few quarters. Martin says he’ll keep a close watch on the near-term fate of the linear channels. As those channels go, so goes the company’s biggest source of cash flow.
“There’s two big things that are important that we can look at right now: what is happening when it comes to traditional TV networks businesses: CNN, TNT, TBS, the Discovery channels, Nickelodeon, CBS. “They’re in secular decline, but they contribute like 70 plus % of the profits and almost all the free cash flow,” Martin says. “They’ve already been cutting costs, so we want to see how that develops because this is the big profit driver and the big cash generator of the combined business.”
Martin adds that despite the turmoil around the deal making process, both Paramount and Warner Bros. come into the deal with operational success stories to tout.
“Both of these businesses have shown pretty good momentum in recent quarters,” Martin says. “So what we want to see there if they can maintain or improve that momentum after combining.”
Hussain says he’ll watch how the company handles its tech-stack needs in merging Paramount, HBO Max and Pluto TV FAST channel service. All of the legacy studios have struggled to deliver great digital user experiences a la Netflix. Skydance has a shot to stand tall if it can catch up with Netflix and Disney+ in algorithm and design. Given the Ellison family’s roots in technology (Larry Ellison is co-founder of Oracle), there may be resources available that will turbocharge the inevitable combination of the company’s streaming platforms into a single vertical powered by the same tech engines.
“The legacy media companies were always at a disadvantage because they didn’t necessarily have the tech backgrounds to figure out the tech part,” Hussain says. “Content is obviously very important. But your ability to distribute and have a good platform is important as well. Netflix has demonstrated that. And you see with YouTube and others how their platforms themselves are also very important in making the customer experience better and all of that stuff. So now you’re bringing in someone who has a far more tech background.”
MoffettNathanson’s Fishman says the company’s content spending priorities in the first year will also be telling. After Skydance bought Paramount in August 2025, it’s first splashy news announcement was a seven-year commitment to UFC rights at an eyepopping $7.7 billion price tag.
“One of the biggest things that we’re watching for is the direction of the combined content spending going forward, and where they’re going to look to take some efficiencies,” Fishman says. “And whether sports is going to take an increasing share of that, given upcoming [NFL rights] negotiations, and where streaming fits into [Skydance’s] overall budget as they reallocate resources away from linear.”
Martin notes that the speed bump Skydance hit in the approval process — the antitrust lawsuit filed by 12 states — cost them probably another $500 million in higher interest fees on short-term debt as rates have inched up.
“They’re not going to have like any extra cash flow to pay down debt [in 2027] because all these synergies will take some time to realize,” Martin says. “A lot of cost to achieve these synergies that are front-weighted. You have to do redundancies, and you have to pay people [severance fees],” he says. “If you have to do the technological investment to move over to a new platform, you might have to get out of old real estate leases to move everyone to one headquarters. Those are headwinds initially.”
Martin and other analysts reinforce that Skydance has a juggle a number of spinning plates in real time — against hard deadlines backed by hard numbers.
“The market knows that basically, they need to deliver on these cost synergies. And they need to grow their profits to reduce debt load and improve their credit metrics,” he says.
