Fitch Ratings on Monday reduced the credit ratings of Paramount Skydance Corporation and Paramount Global to junk status and put those ratings on Rating Watch Negative, citing persistent industry pressures and specific risks tied to Paramount’s proposed takeover of Warner Bros.
Specifically, Fitch lowered the Long-Term Issuer Default Ratings for both Paramount Skydance and Paramount Global to BB+ from BBB-, and cut their Short-Term Issuer Default Ratings to B from F3. The rating agency said the changes reflect competitive pressures across the media sector and ongoing free cashflow headwinds stemming from significant transformation costs.
Fitch further explained that the negative outlook is driven by uncertainty surrounding Paramount’s planned acquisition of Warner Bros. The agency flagged potential credit risks linked to the debt-funded nature of the transaction, the prospect of substantially higher leverage for the combined company, and a limited view of the post-deal capital structure and financial policy.
The move by Fitch follows recent actions from other ratings firms. Moody’s and S&P Global placed Paramount on review for a potential downgrade earlier in the same period, also noting unclear implications for debt related to the Warner deal.
Paramount’s bid for Warner was reported at $31 per share, valuing the transaction at $110 billion. Rival Netflix declined to match the offer. Paramount and Netflix had been engaged in an aggressive bidding contest for Warner; Netflix had previously committed to a deal with Warner until Paramount’s latest proposal was judged superior.
Paramount is expected to finance the bulk of the Warner purchase with debt. Fitch noted that the combined company would carry an estimated net debt of about $79 billion. In addition, Paramount paid Netflix a $2.8 billion fee that was owed by Warner in connection with the earlier, abandoned agreement between Netflix and Warner.
Summary
Fitch’s downgrade of Paramount Skydance Corp and Paramount Global to BB+ and B for long- and short-term ratings respectively moves the companies into non-investment grade territory and puts those ratings on negative watch. The agency cited competitive pressures in the media industry and cashflow strain from transformation costs, while highlighting uncertainty and credit risks tied to Paramount’s debt-funded $110 billion bid for Warner Bros. Moody’s and S&P Global have also placed Paramount under review for potential downgrades.
Key points
- Fitch cut Paramount Skydance and Paramount Global’s Long-Term IDRs to BB+ from BBB- and Short-Term IDRs to B from F3, placing ratings on Rating Watch Negative.
- The downgrade reflects competitive pressures in the media sector and free cashflow headwinds from substantial transformation costs.
- Uncertainty over Paramount’s proposed debt-funded acquisition of Warner Bros - a $31-per-share, $110 billion offer - is central to Fitch’s negative outlook; the combined entity is expected to have about $79 billion in net debt.
Risks and uncertainties
- Deal financing risk - Fitch highlighted the credit risks associated with funding a large portion of the Warner acquisition with debt, which would substantially increase leverage for the combined company.
- Limited visibility on post-deal capital structure and financial policy - the ratings agency said it has a constrained view of how capital structure and financial policy will be managed after the transaction.
- Sector pressures and cashflow headwinds - ongoing competitive pressure across the media industry and significant transformation costs could continue to weigh on free cashflow.