Paramount Skydance is proceeding with a $110bn leveraged buyout of Warner Bros Discovery despite unfavorable market conditions. Treasury yields are at multi-decade highs and investor risk appetites are wavering, making this a challenging time for such a large acquisition. David Ellison's media company sold $52bn in debt on Wednesday, securing an investment-grade credit rating at the lowest tier available.
However, money managers appear skeptical, forcing Ellison to offer higher yields than typical for comparable bonds. The riskier 'junk' portion of the offering carried a 9 per cent yield. Investors are concerned because Paramount's cash flows still heavily depend on a legacy TV business in long-term decline, despite streaming ambitions.
The combined company projects roughly $12bn in annual ebitda against approximately $80bn in net debt. While $6bn in annual cost savings are expected, the competitive landscape remains tough. Netflix chief Ted Sarandos recently pledged to accelerate growth, signaling potential new 'content wars'.
A downturn could trigger forced selling by investment-grade funds if ratings fall to junk. Creditors include major firms like Apollo, Pimco, and Man Group, who accepted generous yields in exchange for looser covenants. Ellison has already navigated battles with WBD's board and US states blocking the deal.
The heavy debt burden ensures ongoing struggles for the Paramount chief.
Source: Financial Times Companies · Summarized by HeadlinesBriefing