S&P Global Ratings has already placed Paramount Skydance’s credit rating in the junk status area, meaning the media conglomerate’s bonds are considered speculative grade. But if Paramount completes its mega-deal with Warner Bros. Discovery, credit rating agencies will likely lower its ratings even further.
S&P Global currently has a ‘BB+’ issuer credit rating for Paramount. On Wednesday, the company announced that it would “downgrade PSKY’s issuer credit rating to ‘BB’ upon completion of the WBD acquisition, assuming there are no material changes to the structure or terms of the transaction due to regulatory considerations, our view of the media ecosystem, and the company’s competitive position due to geopolitical factors or long-term pressures.”
S&P Global defines the ‘BB’ rating as follows: “BB credit ratings indicate that a company is not vulnerable in the short term, but faces significant ongoing uncertainty. The rating reflects its speculative nature and suggests that the company may be more affected by economic downturns or other adverse conditions. While BB credit ratings may currently have debt under control, investors should exercise caution in considering potential volatility.”
Under the deal with WBD, Paramount will assume about $30 billion in net debt on Warner Bros. Discovery’s books. Add to this the tens of billions of dollars in debt the company is racking up to fund the merger itself. In April, Paramount restructured the financing for the deal, reducing its total long-term debt from $54 billion to $49 billion, but the Paramount-WBD merger will still be highly leveraged.
S&P Global said the decision to downgrade the ratings by one notch after the merger is because it expects Paramount and WBD’s leverage ratios to “remain high for the next two years, and do not begin to improve until 2028.” S&P Global expects the combined leverage ratio (adjusted debt to adjusted EBITDA) to be 7.6x in 2026 and not expected to fall below 5x through 2029.
“We believe there is a risk that deleveraging will be slower than expected due to failures in new company integration and transformation, acceleration of long-term trends, and geopolitical or macroeconomic factors,” S&P Global said in a rating recommendation. “The history of the media and entertainment industry has been filled with major mergers where the expected benefits did not materialize or where synergies and integration took longer than expected to achieve.”
The rating agency said all of Paramount WBD’s major businesses “face significant challenges and an increasingly uncertain future. Consumer media consumption is highly fragmented, media’s cultural influence is weakening, and AI is accelerating the narrowing of the quality gap between certain professionally produced content and user-generated content.”
S&P Global agrees with Paramount’s assessment that merging with Warner Bros. Discovery would result in more than $6 billion in cost synergies.
However, the company said, “We intend to include these synergies in our analysis only if they materialize, and we will also include their costs in our analysis. This will primarily depress the company’s EBITDA and free cash flow 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, many of which are “only partially integrated.”
Headcount reductions from the Paramount-WBD merger “will primarily result from the consolidation of terrestrial television operations and reductions in corporate overhead costs,” S&P Global said. Additionally, the company said it expects a significant portion of the cost synergies to come from real estate rationalization, “process improvements” and the integration of the companies’ direct streaming services into a unified technology platform.
S&P Global said it believes the company will “continue to reduce content costs and manage its linear TV business profitably” as it forecasts a decline in revenue for PSKY-WBD’s linear TV business. That forecast incorporates a “significant increase” in NFL programming rights costs, but also “corresponding reductions in other programming costs that reduce the negative impact on segment EBITDA.”
On Tuesday, Paramount Skydance announced a proposal to exchange WBD’s quasi-lien exchange notes into second-lien PSKY notes. S&P Global has assigned a preliminary ‘BB’ rating to Paramount’s proposed second lien secured notes.
Paramount and WBD said they expect the merger, valued at approximately $111 billion, to close in September 2026. The deal is pending European regulatory approval. Additionally, several state attorneys general, including California’s Rob Bonta, are reviewing the deal and may decide to challenge it on antitrust grounds.
