Warner Bros. Discovery has fallen further into junk status after announcing it will split its Global Networks and Studios & Streaming businesses into two separate companies by mid-2026, all while securing a $17.5 billion bridge loan to fund a tender offer of its unsecured bonds.
In a statement on Monday, S&P Global said it downgraded WBD’s unsecured bond rating to BB — the second-highest junk rating — from BB+ and revised its recovery rating from a 3 to 5, reflecting the expectation of a “modest recovery” for lenders in the event of a payment default.
The firm said that the addition of new secured debt would negatively affect the recovery prospects for the company’s unsecured debt. In a presentation to investors on Monday, WBD said it has around $35.5 billion in outstanding bonds.
It also put WBD on a negative credit watch and said it would review whether to downgrade the company’s other ratings.
“The CreditWatch placement reflects our view that the separation of WBD’s business will weaken our view of its credit quality, as well as the uncertainty around its final capital structure and leverage following the separation,” S&P said. “As such, we could lower the issuer credit rating on the company by one or more notches depending on our view of its business (Global Networks), final capital structure and financial profile as of the close of the transaction.”
S&P also noted that the Global Networks business faces “significant secular pressure” due to the decline of linear TV audiences, subscriber losses and reduced advertising as more people shift to streaming.
“Our view of the business will weaken following the separation,” the firm added. “We will assess the stand-alone GN business, along with its final capital structure and financial metrics, at close to determine the transaction’s impact on our rating. However, given our less-favorable view of the separated business, as well as its considerable portion of the remaining debt, we expect to lower our rating by one or more notches when the separation is completed.”
The move follows a previous downgrade from S&P in May, in which it lowered the company’s rating from a BBB- to a BB+.
At the time, the firm forecasted that the company’s total adjusted EBITDA would hover around $9 billion for the next three years. It also projected a leverage ratio of 4.3 times for Warner by the end of 2025 and for the company’s leverage to remain above 3.5 times until 2027.
Additionally, S&P predicted at the time that the Global Networks EBITDA would fall 20% to $6.5 billion due to accelerating revenue declines and elevated content costs from newly acquired sports rights content coupled with its last year of NBA rights in 2025.
It also said linear advertising would decline 11% due to continued pressure on audience ratings and less sports than its peers and that distribution would decline 8% due to slower rates of price increases and more of the subscription fees being allocated to streaming in its distribution deals that were renewed in 2024.
Following the split, the Studios & Streaming business will include Warner Bros. Television Group, Warner Bros. Motion Picture Group, DC Studios, HBO, HBO Max, Warner Bros. Games, Tours, Retail and Experiences, as well as studio production facilities in Burbank and Leavesden.
Executives have said that the streaming business is on track to generate at least $1.3 billion in profit by the end of 2025 and reach at least 150 million streaming subscribers by the end of 2026, which it plans to achieve through a combination of expanding Max internationally, strategic distribution partnerships and driving higher penetration of its ad-supported tier. Meanwhile, the studios business is targeting at least $3 billion in annual profit, though a specific timeline for achieving that is unclear.
Global Networks will include CNN, TNT Sports in the U.S., Discovery, top free-to-air channels across Europe, Discovery+ and Bleacher Report (B/R). It will retain a 20% stake in the studios and streaming business to help the company deleverage and is expected to take the majority of WBD’s roughly $37 billion in gross debt.
Shares of Warner Bros. Discovery have fallen more than 50% since the 2022 merger.
