Fitch Ratings on Monday (October 5) downgraded Paramount Skydance's long-term issuer default rating from BB+ to BB, citing significantly higher leverage following the acquisition of Warner Bros. Discovery (WBD), along with major execution and integration risks. The downgrade landed one day before the deal's expected closing on October 6.
For clarity: BB+ was already Fitch's highest non-investment-grade (junk) rating. This move takes the company one notch deeper into junk — not a first fall from investment grade. Fitch's rationale has three pillars: elevated post-acquisition leverage, execution and integration risk, and uncertainty over cost synergies, which are the centerpiece of the company's deleveraging plan.
Fitch projects leverage of about 7.8 times in fiscal 2026, falling to 6.2x in 2027 and 4.5x in 2028 — a forecast that assumes the company realizes 85% of more than $6 billion in identified cost synergies. The company has committed to net leverage below 3.75x by 2028 and below 3.0x the year after, but getting there requires asset sales or new equity issuance, neither of which sits in Fitch's base case. S&P separately expects net debt to adjusted earnings of about 7x in 2026–27, targeting 3x or lower by 2029.
Total debt after the acquisition stands near $80 billion, including assumed debt. The deal closed at $81 billion, with an enterprise value of about $110 billion. Moody's had already rated Skydance's debt Ba3 on September 29 (one notch below investment grade); S&P issued a slightly higher rating on October 2.
Paramount Skydance shares fell about 6.3% on the downgrade news. The combined company has been renamed "Skydance," listed on the NYSE under the ticker SKYD; its first day of trading saw a roughly 3% decline to $9.51. The broader environment isn't helping: the 10-year Treasury yield rose to about 5.33%, its highest since 2002, raising the cost of new borrowing — and with the S&P 500 up about 0.3% the same day, the selloff is clearly company-specific.
Analysts are split. Needham maintains a Hold, warning that net debt will remain above 4x EBITDA even after synergies; Citizens keeps a Market Outperform with a $14 price target. Fitch also expects Paramount's free cash flow to stay negative in fiscal 2026, with the regular dividend unchanged for now.
The good news is that the legal overhang is gone. Judge Araceli Martinez-Olguin accepted a consent decree in the state attorneys general lawsuit, which had accused the merger of over-concentrating theatrical film and TV channel markets. Because closing came after September 30, Paramount also owes WBD shareholders $41.9 million in ticking fees. One of Hollywood's largest mergers ever is now starting life with a mountain of debt: a downgraded rating, negative free cash flow, and a long road to deleveraging.
(Compiled from reporting by Dow Jones Newswires, TipRanks, Front Office Sports, TV Central, CoinCentral, Blockonomi and TradersUnion)