Story
S&P Downgrades Paramount Skydance to 'BB' on Post-Acquisition Leverage Concerns
Summary
S&P Global Ratings has lowered Paramount Skydance's credit rating to 'BB' from 'BB+', citing significantly higher leverage expected after its acquisition of Warner Bros. Discovery.
S&P Global Ratings has downgraded Paramount Skydance Corp.’s issuer credit rating to 'BB' from 'BB+', reflecting the substantial increase in debt the company will assume upon closing its acquisition of Warner Bros. Discovery. The ratings agency removed the company from CreditWatch, where it had been placed with negative implications on Feb. 27, 2026, and assigned a stable outlook to the new rating.
Details of the Rating Action
The downgrade affects multiple layers of the company's debt structure. S&P stated that the move reflects the pro forma financial profile of the combined media entity, which will be more heavily indebted.
Key rating changes include:
- Issuer Credit Rating: Lowered to 'BB' from 'BB+'.
- Proposed Term Loan B: Assigned a 'BBB-' issue-level rating and a '1' recovery rating.
- Legacy Unsecured Debt: Lowered to 'B+' from 'BB+'.
- Junior Subordinated Debt: Lowered to 'B' from 'B+'.
Leverage and Cash Flow Projections
AdS&P forecasts that Paramount Skydance's leverage will start at a high of approximately 7.6x and remain near that level through 2027. The agency anticipates leverage will improve to about 5.1x in 2028 as the company begins to realize operating synergies from the merger.
Free operating cash flow (FOCF) is projected to be minimal in 2026 but is expected to rebound significantly to over $4 billion in 2027. This would represent a FOCF-to-debt ratio of 3.4%, which S&P projects could improve to over 17% by 2030.
Basis for Stable Outlook
The stable outlook reflects S&P's expectation that credit metrics will strengthen beginning in 2028 as the new company implements its strategy. The rating agency's decision was based on the Ellison family's commitment to deleverage, with stated goals of getting net debt below 3.75x by 2028 and to 3.0x by 2029.
However, S&P cautioned that it could issue another downgrade if the company fails to reduce leverage below 5x or if cash flow trends toward break-even in 2028. An upgrade is considered unlikely until there is greater confidence in the company's 2028 operating performance and a clear path to leverage falling below 4.25x.
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