Paramount Skydance has been put on a watch by S&P Global for a possible credit rating downgrade after the studio prevailed against Netflix with a $31 per share bid to merge with Warner Bros. Discovery.
The ratings firm has revised its outlook for Paramount to negative, while affirming its BB+ credit rating, on grounds Paramount will see its debt load likely grow beyond a red line for a possible downgrade. “While the company has yet to provide complete details around how it will finance the transaction, which we estimate will cost $111 billion (including the assumption of WBD’s debt and a one-time $2.8 billion termination payment to Netflix), we believe the purchase will increase its leverage well above our 4.25x downgrade threshold for the current rating,” S&P said in a statement on Tuesday.
The ratings firm’s caution assumes Paramount will have to take on substantial debt to acquire WBD and, while investing for growth, will also have to bring down its interest expense and borrowings.
“We note that S&P Global adjusted leverage, which includes our adjustments for operating leases and restructuring charges and is net of cash, as of Dec 31, 2025 was 4.8x. PSKY has offered WBD’s shareholders a daily ticking fee starting after Sept. 30, 2026, until the transaction closes, which could add $650 million each quarter in additional costs to the transaction,” S&P added in its commentary.
The ratings firm has a wait-and-see attitude towards Paramount to show operational and financial performance improvements over time.
“If (Paramount) successfully completes the merger and integration, we would likely view the pro forma company more positively because it would have an enviable collection of marquee IP and the largest library of film and television content in the world. This would provide the company with the content and library to compete in the global streaming space and potentially help offset the declines in its linear TV business,” S&P argued.
The ratings firm said it could lower its issuer credit rating by at least one notch, depending on how Paramount fares with WBD in its fold and how it reduces its overall debt load to do so.
