Paramount Skydance Corp. is headed for a one-notch credit downgrade at the close of its merger with Warner Bros. Discovery, and S&P Global Ratings says the combined company has a long road back thanks to an enormous debt load.
S&P affirmed its BB+ issuer credit rating on Paramount Skydance on Tuesday but kept the rating on CreditWatch negative. The agency also assigned preliminary BB issue-level ratings with a recovery rating of 4 to the company’s proposed second-lien secured notes, being offered in exchange for Warner Bros. Discovery junior-lien notes as part of the deal’s capital structure.
The declaration comes after Paramount Skydance commenced tender offers to purchase up to $2.4 billion in aggregate principal of identified Warner Bros. Discovery notes for cash, alongside exchange offers to convert up to $12.8 billion of specified WBD notes into newly issued Paramount Skydance second-lien secured notes. The company has also disclosed plans for $39.5 billion in new first-lien secured debt and $12.4 billion in new second-lien secured debt to replace existing bridge commitments, with settlement on all offers conditioned on closing of the acquisition.
The core problem, per S&P, is leverage. The combined company will enter the merger at 7.6x, more than 3 points above the 4.25x threshold S&P requires for a BB+ rating. The Ellison family has committed to aggressive deleveraging, targeting below 3.75x by 2028 and 3.0x by 2029, but S&P’s own calculations, which include lease obligations and count cost savings only after they are actually realized, run higher than the company’s projections throughout the forecast window.
Free operating cash flow is expected to be minimal in 2026, the year most integration costs hit, before improving to over $4 billion in 2027, representing 3.4% of total debt. S&P forecasts that ratio reaching 17% by 2030, contingent on successful integration.
For broadcasters, the more consequential numbers are in the linear television analysis. S&P estimates the combined company will generate 48% of revenues and 89% of EBITDA from linear TV at close, giving it an estimated 30% share of U.S. viewing audiences and 20% of TV advertising revenues. Scale, however, is not a cure. “The company would simply be a larger part of that deterioration,” the report states, referring to the ongoing collapse of the pay-TV bundle.
S&P forecasts cord-cutting moderating from 7% annually to 5%, attributed to a natural slowdown rather than any stabilization of the underlying trend.
The streaming integration timeline is central to the bull case. A single combined DTC service is not expected until 2028, when Paramount+ would fold into HBO Max in international markets where the service has not yet launched. In the meantime, linear revenue management is expected to consist largely of cost discipline — cutting content spending on an ongoing basis while absorbing a significant step-up in NFL programming rights costs.
Execution risk is the primary variable in the ratings trajectory, S&P said, noting that Paramount has been nine months into its Skydance integration with transformational goals still largely unrealized, and that adding Warner Bros. Discovery’s global scale makes this one of the most complex integrations in media sector history.
AI’s role in narrowing the quality gap between professional and user-generated content was listed among the secular pressures the combined company cannot fully mitigate through consolidation alone.
