Paramount Skydance’s huge deal with Warner Bros. Discovery has taken on significant new debt and faces a number of other financial risks. Now, one of Wall Street’s major credit rating agencies has downgraded Paramount’s debt to junk status and lowered the issuer’s default rating.
Fitch Ratings has downgraded Paramount Skydance’s long-term issuer default rating from ‘BBB-‘ to ‘BB+’, placing it in the speculative-grade investment realm (also known as ‘junk’). Additionally, Fitch downgraded Paramount Skydance’s senior unsecured notes from ‘BBB-‘ to ‘BB+’ and placed all ratings on ‘Rating Watch Negative’, indicating that further downgrades may be forthcoming.
Paramount Skydance’s downgrade “reflects competitive pressures across the media sector and continued (free cash flow) headwinds from significant transformation costs,” Fitch Ratings said in a statement Monday. “Fitch believes PSKY’s leverage and FCF may remain outside negative rating sensitivities for longer than we expect.”
The Negative Rating Watch “reflects the uncertainty associated with Warner Bros. Discovery’s proposed acquisition,” Fitch added. Potential credit risks include future debt financing structures; Fitch expects “significant increases in leverage.” And there is “limited visibility regarding post-transaction financial policy and capital structure,” the regulator said.
Fitch’s announcement comes after two other major credit rating agencies, Moody’s and S&P Global, announced on February 27 that they would put Paramount Skydance under review for possible downgrade. On February 26, Netflix abandoned its deal to buy Warner Bros.’ studio and streaming business after David Ellison’s Paramount raised its offer for WBD to $31 per share, making Paramount the winner of the M&A battle in a deal valued at $111 billion.
Paramount will assume approximately $33 billion in debt that Warner Bros. Discovery has on its books. All told, the new company will have about $79 billion in long-term debt.
In its downgrade note, Fitch Ratings said there is “limited visibility” into Paramount Skydance’s post-transaction capital structure. This includes the rating and security package of the new debt, the expected split between secured and unsecured tranches, and where within the group the debt will be issued. “This uncertainty increases the risk of structural subordination and potential priming of existing unsecured creditors, particularly if the combined group adopts a more bifurcated secured and unsecured capital structure,” Fitch said.
Fitch continued that Paramount’s proposed acquisition of WBD is “highly complex, reflecting the scale of the financing required, limited transparency of the pro forma capital structure, and the operational challenges of integrating two large media groups.” “We expect increased regulatory oversight in key jurisdictions, which may increase enforcement risks and extend transaction completion timelines. Fitch believes key areas of focus may include market concentration and the potential impact on competition, distribution practices, and consumer outcomes.”
However, the acquisition of WBD would expand Paramount’s reach across filmed entertainment through ownership of another major studio with a rich catalog of movies and television shows. Fitch said the move is expected to “strengthen PSKY’s competitiveness, including enhanced pricing power, control of content licenses, and prioritization of premium content for its platform.”
Meanwhile, S&P Global already had a “BB+” (junk) credit rating for Paramount. S&P Global said the company’s move to put Paramount Skydance under review “with negative implications” reflects “our view that the potential merger with WBD would significantly increase PSKY’s leverage above the current rating downgrade threshold of 4.25x.”
Through the acquisition of WBD, Paramount Skydance will significantly expand the “breadth and depth” of its content and intellectual property, while also “increasing its linear TV exposure,” S&P Global said. “Given our history of significant mergers and acquisitions, we will look for evidence of success before providing rating credits. According to our criteria, this will require realization of potential cost synergies rather than recognition on a pro forma basis.”
Under the terms of the proposed acquisition, Paramount Skydance would pay WBD shareholders a ticking fee every day from September 30, 2026 until the transaction closes, which could add an additional $650 million to the transaction each quarter, S&P Global noted.
