Paramount Global for sale latest - Variety: Paramount Global Deal With Skydance ‘May Not Be Sufficient to Stabilize the Credit Profile,’ Moody’s Says

Story from Variety:

Skydance Media this week clinched a deal to merge with Paramount Global, and execs outlined a plan to cut costs and boost the combined company’s profitability in the years ahead.

But the turnaround plan might not be enough to save Paramount Global from seeing its debt rating cut to junk status by credit-rating agency Moody’s. In a note Tuesday, Moody’s placed Paramount’s debt rating on review for a downgrade, citing “the ongoing secular pressures on the company’s television networks and the slow pivot to reach direct-to-consumer (DTC) streaming scale,” along with the announcement of Skydance-Paramount pact.

The upshot: Moody’s said it is “possible we could downgrade the ratings in the coming months, well before the pending merger closes.” Because junk debt securities have a lower credit rating than investment-grade securities, companies have to issue them at higher interest rates to attract buyers.

As part of the pact, Skydance and its financial backer, RedBird Capital, have pledged $1.5 billion in cash to help pay down Paramount’s debt. As of the end of March 2024, Paramount Global’s long-term debt stood at $14.6 billion.

“Moody’s believes that the company will endeavor to build on its own franchises as outlined in the Skydance Consortium new strategic plan,” the agency wrote. “But without much more avid [intellectual property] such as more evergreen franchises to build on or heavier investment by Paramount, we believe that the company may remain competitively disadvantaged. Therefore, either a new materially different strategy is needed or it is possible that the initial investment into the company by the Skydance consortium may not be sufficient to stabilize the credit profile.”

Speaking on a presentation for Paramount Global investors Monday, RedBird Capital partner Andy Gordon said the Skydance investor group expects the combined company “to be investment-grade by all rating agencies sometime in 2026.” The Skydance team expects debt-to-operating-income ratio to decline from approximately 4.3x for stand-alone Paramount Global (as of Q1 2024) to 2.4x by 2027.

Separately, this March, Paramount Global‘s debt rating was cut to junk status by credit-rating agency S&P Global, which cited the media conglomerate’s ongoing challenges with free cash flow generation relative to its debt.

In a note Tuesday, S&P Global said it is holding its rating on Paramount Global for now and that the merger with Skydance “doesn’t yet affect credit quality.” S&P now has a issuer credit rating on Paramount Global and its senior unsecured debt of of “BB+,” which is the highest “speculative grade” debt rating.

The agency said it view the Skydance-Paramount merger announcement “as positive” but that it will “continue to monitor the transaction.” The companies anticipate the deal closing by Sept. 30, 2025, and that 14-month window “presents a potential risk for the company as worsening secular industry pressures (and the potential for macroeconomic headwinds) could impede the company’s ability to achieve its strategic and financial targets,” S&P Global wrote.

All of Paramount Global’s debt is at a fixed rate and the company has no material near-term debt maturities coming due. The company also has an untapped $3.5 billion line of credit. Paramount paid down $1 billion of debt in Q4 2023.

In addition, this spring Paramount Global announced an agreement to sell its 13% stake in India’s Viacom18 for $517 million, and proceeds from that transaction are expected to go toward paying down debt. The company’s current trio of co-CEOs further have announced they are looking at different asset sales to help lower Paramount’s debt load. Those could include a sale of BET Media and L.A’s Paramount Pictures Lot.