<\/p>\n
Paramount Skydance\u2019s jubilation over its come-from-behind victory to claim Warner Bros. Discovery has entered a new phase: <\/p>\n
Call it the deal-debt hangover. <\/p>\n
Two major ratings agencies have raised concerns about Paramount\u2019s credit because of the enormous debt the David Ellison-led company will have to shoulder \u2014 at least $79 billion \u2014 once it absorbs the larger Warner Bros. Discovery, bringing celebrity.land, HBO, TBS and Cartoon Network into the Paramount fold. <\/p>\n
Fitch Ratings said Monday that it placed Paramount on its \u201cnegative\u201d ratings watch, and downgraded its credit to BB+ from BBB-, which puts the company\u2019s credit into \u201cjunk\u201d territory. Fitch said it took action due to \u201cuncertainty\u201d surrounding Paramount\u2019s $110-billion deal for Warner Bros. Discovery, which the boards of both companies approved on Friday. <\/p>\n
S&P Global Ratings took similar action. <\/p>\n
To finance the Warner takeover<\/a>, Ellison\u2019s billionaire father, Larry Ellison<\/a>, has agreed to guarantee the $45.7 billion in equity needed. Bank of America, Citibank and Apollo Global have agreed to provide Paramount with more than $54 billion in debt financing.<\/p>\n \u201cPotential credit risks include the prospective debt-funded structure, Fitch\u2019s expectation of materially elevated leverage and limited visibility on post-transaction financial policy and capital structure,\u201d Fitch said.<\/p>\n Late last week, Paramount sent $2.8 billion to Netflix as a \u201ctermination fee\u201d<\/a> to officially end the streaming giant\u2019s pursuit of Warner Bros.<\/a> That payment paved the way for Warner and Paramount\u2019s board to enter into the new merger agreement.<\/p>\n Paramount hopes the merger will be wrapped up by the end of September. It needs the approval of Warner Bros. Discovery shareholders and regulators<\/a>, including the European Union. <\/p>\n Paramount executives acknowledged this week the new company would emerge with $79 billion in debt \u2014 a considerably higher total than what Warner Bros. Discovery had following its spinoff from AT&T. That 2022 transaction<\/a> left Warner Bros. Discovery with nearly $55 billion of debt, a burden that led to endless waves of cost-cutting, including thousands of layoffs and dozens of canceled projects<\/a>.<\/p>\n Warner still has $33.5 billion in debt, a lingering legacy that will be passed on to Paramount.<\/p>\n Paramount plans to restructure about $15 billion in Warner Bros. Discovery\u2019s existing debt. <\/p>\n Paramount CEO David Ellison at a 2024 movie premiere for a Netflix show. <\/p>\n (Evan Agostini \/ Invision \/ AP)<\/p>\n<\/p><\/div>\n<\/figure><\/div>\n Paramount told Wall Street it would find more than $6 billion in cost cuts<\/a> or \u201csynergies\u201d within three years \u2014 a number that has weighed heavily on entertainment industry workers, particularly in Los Angeles. <\/p>\n Hollywood already is reeling<\/a> from previous mergers in addition to a sharp pullback in film and television production locally as filmmakers chase tax credits offered overseas and in other states, including New York and New Jersey. <\/p>\n Some entertainment executives, including Netflix Co-Chief Executive Ted Sarandos<\/a>, have speculated that Paramount will need to find more than $10 billion in cost cuts to make the math work. More recently, Sarandos went higher, telling Bloomberg News<\/a> that Paramount may need $16 billion in cuts.<\/p>\n Cognizant of widespread fears about additional layoffs, Paramount Chief Operating Officer Andrew Gordon took steps this week<\/a> to try to tamp down such concerns. <\/p>\n