Fitch Ratings has downgraded Paramount Skydance’s (PSKY) corporate and long-term borrower ratings to junk after the company agreed to acquire larger rival Warner Bros. Discovery (WBD).
The deal is expected to leave the combined entity with roughly $79B in net debt.
Fitch downgraded Paramount Skydance and Paramount Global’s (PSKY) Long-Term Issuer Default Ratings (IDR) to BB+ from BBB-, pushing the company from the lowest rung of investment grade into junk status. The agency also cut the Short-Term IDR to B from F3.
In addition, Fitch lowered PSKY’s senior unsecured debt rating to BB+ from BBB-, assigning a Recovery Rating of RR4. The agency has placed all the ratings on negative watch to reflect uncertainty related to the proposed acquisition of Warner Bros, with potential credit risks including the prospective debt-funded structure, Fitch’s expectation of materially elevated leverage, and limited visibility on post-transaction financial policy and capital structure.
“The downgrade reflects competitive pressures across the media sector and continued FCF headwinds from significant transformation costs. Fitch believes PSKY’s leverage and FCF may remain outside negative rating sensitivities longer than we anticipated,” the agency said.
Paramount (PSKY) agreed to buy Warner Bros. (WBD) last week in a $31 a share takeover. With a total value of $110B, it’s one of the biggest mergers and media deals of all time.
Fitch expects to resolve the RWN once final transaction terms, financing mix, and post-close deleveraging priorities become clearer.