Fitch downgraded Paramount and Warner Bros. Discovery’s credit ratings following the closing of the media giants’ $110 billion merger, citing “materially higher leverage” after the acquisition and “significant execution and integration risks.”
“Execution risk stems from combining operations, realizing synergies and managing a higher debt burden. The transaction also requires integration of content, streaming technology, corporate systems and operating models,” the firm wrote. “Delays or weaker execution could reduce planned cost savings and slow deleveraging.”
The downgrade also reflects uncertainty about the company’s ability to achieve its stated $6 billion in synergies in the first three years of the deal, which are material to its goal to reduce net leverage to 3 times by the end of 2029.
Additionally, Fitch notes that the combined company faces “structural pressure on linear revenues, streaming competition and hit-driven content risk.” The firm estimates that the combined company’s linear operations generated about 52% of their pro forma revenue and 86% of EBITDA in fiscal 2025.
“A sharper-than-assumed linear decline could reduce the benefit of scale and cross-platform advertising sales and constrain the company’s ability to offset weakness through DTC and Studios growth,” Fitch said.
Fitch has lowered Paramount and WBD’s long-term issuer default ratings from BB+ to BB, which indicates an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time. However, business or financial flexibility exists that supports the servicing of financial commitments.
It also affirmed Paramount’s short-term issuer default rating at B, which means a material default risk is present, but a limited margin of safety remains. While financial commitments are currently being met, capacity for continued payment is vulnerable to deterioration in the business and economic environment.
Additionally, it assigned a BBB-/RR1 rating to Paramount’s first-lien secured debt and ‘BB’/’RR4’ rating to its second-lien secured debt. It also downgraded Paramount’s senior unsecured debt and junior subordinated notes to BB-/RR5 and BB/RR5, respectively, and WBD’s senior unsecured notes to B+/RR6.
An RR1 rating indicates outstanding recovery prospects of 91% to 100% given default, while an RR6 rating means poor recovery prospects of 0% to 10%.
Fitch expects the combined company to have around $87.5 billion in total debt, including $44.5 billion of first-lien secured debt, $12.4 billion of new second-lien secured debt, $12.8 billion of new Paramount Skydance notes and approximately $2.6 billion of remaining WBD unsecured notes. The debt structure also includes $2.5 billion three-year and $2.5 billion five-year Term A loan facilities.
Meanwhile, the company’s liquidity will include cash from Paramount and Warner Bros., internally generated free cash flow and a $5 billion secured revolving credit facility that will be undrawn at close. Fitch expects free cash flow margins to improve to mid-single digits by fiscal 2028 as costs moderate and the combined company realizes targeted synergies and margin benefits.
It also estimates that the combined company’s leverage is 7.8 times for fiscal 2026 following the addition of about $57 billion in acquisition-related debt. It expects that will decline to 6.2 times in fiscal 2027 and 4.5 times in fiscal 2028 as the combined company realizes merger-related cost savings.
In order to reach its target of net leverage below 3.75 times in fiscal 2028 and 3 times in fiscal 2029, Fitch believes issuing equity or selling assets would be required, in addition to merger synergies and free cash flow generation.
Though the firm said that the commitments in the combined company’s legal settlement with 12 state AGs are “largely achievable,” it warned that compliance could “constrain cost actions and operating flexibility.” It also said that political, regulatory and creative-sector scrutiny could delay integration, require changes to content production or distribution, reduce planned savings and slow deleveraging.
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