The ability of the new Skydance to repay its massive debt following the mega-merger of Paramount and Warner Bros. Discovery is questioned by credit rating agency Fitch.
Led by CEO David Ellison, Skydance opened Tuesday with a nearly unprecedented level of debt for a major media M&A deal, worth about $80 billion. For comparison, when Discovery Communications purchased WarnerMedia from AT&T, it assumed $43 billion in debt from AT&T, leaving the new WBD with approximately $53 billion in gross debt as of June 2022.
According to a rating released Monday by Fitch Ratings – one day before the Paramount-Warner Bros. deal officially closes. and before common stock of the unified company, renamed Skydance Corp., began trading on the New York Stock Exchange – the ratings company lowered Paramount Skydance’s long-term issuer default ratings (IDRs) from BB+ to BB following the merger.
Fitch’s BB+ rating is the company’s highest non-investment grade rating (so Paramount’s debt was already rated high yield or “junk”), and BB reduces that level. The rating downgrade means that Fitch views Skydance as having “elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.” But regarding the rating level, Fitch nevertheless notes that there is sufficient flexibility to allow debt repayment.
According to Fitch, the “downgrade reflects materially higher post-acquisition leverage and significant execution and integration risks” as well as “uncertainty over the company’s ability to realize the reported synergies, which are material to its deleveraging objective.” The company says the new merged entity “faces structural pressure on linear revenues, competition from streaming and risk from blockbuster content.”
The other two major credit rating firms, Moody’s and S&P Global Ratings, have yet to issue new assessments of the combined company’s financial prospects since their forecasts last week.
In a September 29 note, Moody’s rated Skydance’s debt overall at Ba3, one notch below investment grade. This investment rating means that the company pays higher interest rates in most cases for credit facilities and short-term borrowings that are the normal course of business for large companies.
On October 2, S&P Global gave Skydance slightly higher ratings, which at the time were consistent with Fitch’s views. S&P Global and others estimate that Skydance in 2026 and 2027 will have a net debt-to-adjusted earnings ratio of 7. The goal would be to bring that ratio down to 3x or less by 2029.
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