Warner Bros. Discovery was downgraded to junk status by S&P Global Ratings on Tuesday, with the credit agency pointing to challenges facing its linear TV business as the primary driver.
The downgrade, from BBB- to BB+, reflect S&P’s expectation that WB Discovery will not be able to offset its TV losses with growth from its streaming and studio businesses. Tuesday’s downgrade comes just a few weeks after WB Discovery reported a 10% decline in first quarter sales — a decline that was due largely to a 27% drop in content revenue, as WB Discovery failed to make as much money at the box office as it had a year ago.
Another issue for WB Discovery during the first quarter was that its advertising revenue also dipped 8% year-over-year. The company’s growth in global streaming subscribers during the quarter was not enough to counteract the continued decline of its domestic linear TV business.
On Tuesday, S&P said it projected a leverage ratio of 4.3 times for WB Discovery by the end of 2025, well above the 3.5 times threshold for investment-grade ratings. S&P added it expects WB Discovery’s adjusted EBITDA to hover around $9 billion for the next three years.
The downgrade signals major concerns over the company’s debt burden and weakened TV operations. WB Discovery is the parent company of several prominent channels, including HBO, CNN and the Food Network.
S&P on Tuesday said it did not factor into its rating WB Discovery’s plan to divide its business into two divisions, with one focused on its cable operation and the other on streaming and content; if the split goes through, S&P said it would “be a credit negative” for WB Discovery.
WB Discovery, earlier this month, reported its global linear networks continued to suffer from cord-cutting, with profits falling 15% to $1.8 billion and revenue dropping 7% to $4.8 billion. The company is looking towards its streaming division to combat that decline, and on that front, WB Discovery announced last week it was changing the name of its linchpin app, Max, back to HBO Max.
“We are bringing back HBO, the brand that represents the highest quality in media, to further accelerate that growth in the years ahead,” WB Discovery CEO David Zaslav said about the move last week.
Investors did not seem too worried about the downgrade — if they had heard about it yet — on Tuesday afternoon, with WB Discovery’s stock closing the day with a 2.1% increase. It has been a rocky year for WB Discovery on Wall Street to this point, as the company’s share price has dropped 13.3% since the calendar flipped to 2025.
