Paramount Skydance is paying investors top dollar to fund its $110bn acquisition of Warner Bros Discovery, as it races to close the long-awaited buyout that would remake the Hollywood landscape. The merger is expected to close in the coming days, after clinching a landmark settlement with US regulators on Wednesday. The studio launched a record-breaking $52bn financing package this week despite a bond sell-off that drove up financing costs globally, as it rushed to close the deal before a third-quarter deadline to avoid hefty penalty fees promised to Warner Bros shareholders.
The marquee debt offering, led by Citigroup, Bank of America and Apollo, comes after a week of heavy debt issuance in the junk bond market, where Soft Bank raised more than $11bn for its Open AI bets. “The market is on a shakier footing,” said Hunter Martin, head of media and cable at research firm Credit Sights. “Investors as a result were able to extract additional compensation and risk premium.”
Paramount on Wednesday sold $30bn of investment-grade debt and more than $12bn of junk bonds, dethroning Soft Bank as the largest ever borrower in the speculative-grade market. The debt package also includes $9.5bn of leveraged loans across dollars and euros. Paramount executives, including chief executive David Ellison, told potential investors in recent days that the acquisition was expected to deliver about $6bn in cost savings through combining technology and other corporate resources, and that the company was committed to an investment-grade status by prioritising deleveraging, according to people familiar with the matter.
Debt that has the first claim on the company’s assets was rated BBB- by S&P and Fitch, the lowest investment-grade rating. But investors valued the notes at levels closer to junk. “The current credit metrics for this company are not commensurate with the rating,” Martin said. “The rating is based on the expectation that they will execute the savings, grow their profitability and repay debt over the next few years.” The borrowing will leave the combined Paramount-Warner Bros company with a heavily leveraged balance sheet, expected to emerge with about $80bn of net debt, equivalent to more than six times the companies’ combined annual earnings before interest, tax, depreciation and amortisation, before accounting for the cost savings executives have promised.
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