Fitch has downgraded Paramount’s debt to junk status and put the media giant on a negative credit watch over uncertainty related to its $110 billion merger with Warner Bros. Discovery, warning that its leverage and free cash flow “may remain outside negative rating sensitivities” for longer than anticipated.
The firm said the downgrade reflects “competitive pressures across the media sector and continued [free cash flow] headwinds from significant transformation costs.” Fitch added that the negative credit watch is based on its expectation that the combined company will have”materially elevated leverage” due to $54 billion in debt financing commitments, as well as the firm’s “limited visibility on post-transaction financial policy and capital structure.”
“Fitch views PSKY’s proposed acquisition of WBD as highly complex, reflecting the scale of required financing and limited transparency on the pro forma capital structure, as well as the operational challenge of integrating two large media groups,” the firm said in a statement. “We expect heightened regulatory scrutiny in key jurisdictions, which could increase execution risk and extend the timeline to close.”
It expects that the combined entity would generate minimal or negative free cash flow initially, and that “restructuring and integration needs could be significant,” which would “increase sensitivity to operating volatility and refinancing conditions.” However, it believes the WBD deal will ultimately strengthen Paramount’s competitive position, including “greater pricing power, control over content licensing, and prioritization of premium content for its own platforms.”
https://finance.yahoo.com/news/paramount-downgraded-junk-status-fitch-153624358.html