Paramount credit downgraded to ‘junk’ status over debt worries

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After a surprising win to secure a deal with Warner Bros. Discovery, Paramount Skydance is now moving forward with the next steps.

Call it the deal-debt hangover.

Ratings agencies have lowered their assessment of Paramount’s financial health due to worries about the significant debt—at least $79 billion—it will take on after merging with Warner Bros. Discovery. This merger will bring channels like CNN, HBO, TBS, and Cartoon Network under the Paramount umbrella.

Fitch Ratings lowered its credit rating for Paramount on Monday, moving it to “junk” status. This downgrade, along with a “negative” watch placement, was triggered by doubts about the proposed $110 billion merger between Paramount and Warner Bros. Discovery, which both companies’ leadership recently agreed to.

S&P Global Ratings took similar action.

To fund the acquisition of Warner, Larry Ellison, the billionaire founder of Oracle, has pledged to cover the $45.7 billion in required equity. In addition, Paramount has secured over $54 billion in debt financing from Bank of America, Citibank, and Apollo Global.

Fitch Ratings identified several potential financial risks, including the company’s reliance on borrowing, a likely increase in debt, and uncertainty about how the company will manage its finances and debt after the transaction.

Paramount paid Netflix $2.8 billion to end their attempt to acquire Warner Bros. This payment allowed Warner Bros. and Paramount to finalize their new merger agreement late last week.

Hollywood Inc.

David Ellison, the head of Paramount, has been trying to acquire Warner Bros. for several months and expressed his satisfaction that Warner Bros.’s board of directors agreed his offer was better than any others.

Paramount is aiming to complete the merger by the end of September, but it first needs the go-ahead from both Warner Bros. Discovery owners and various regulatory bodies, like the European Union.

Paramount’s leaders have stated the newly formed company will start with $79 billion in debt, which is significantly more than Warner Bros. Discovery had after separating from AT&T. Warner Bros. Discovery’s debt of almost $55 billion in 2022 forced them to make deep cuts, resulting in thousands of job losses and the cancellation of many projects.

Warner still has $33.5-billion in debt, a lingering legacy that will be passed on to Paramount.

Paramount plans to restructure about $15-billion in Warner Bros. Discovery’s existing debt.

Paramount has promised investors it will reduce costs by over $6 billion in the next three years. This goal has caused concern among people working in the entertainment industry, especially those in Los Angeles.

Hollywood is already struggling due to past mergers, and things are getting worse. Film and TV production is declining locally because filmmakers are seeking tax breaks in places like New York, New Jersey, and even overseas.

I’ve been following the situation with Paramount closely, and it sounds like things are pretty serious. Some people at companies like Netflix, including Ted Sarandos, think Paramount might need to cut over $10 billion to get back on track. Actually, Sarandos recently told Bloomberg that the number could even be as high as $16 billion! It’s definitely a lot of money, and I’m curious to see how they’ll handle it.

Knowing that many people were worried about more job cuts, Paramount’s Chief Operating Officer, Andrew Gordon, tried to reassure employees this week. He aimed to lessen those fears and clarify the situation.

Gordon previously worked at Goldman Sachs and as an executive at RedBird Capital Partners, a firm that invests in companies like Paramount and was involved in the potential Warner Bros. acquisition. He became part of the Paramount team last August when Karen Keyes and Tom Henson took over.

In a meeting with financial analysts on Monday, Paramount’s CEO, Bob Bakish, stated the company plans to reduce costs outside of its creative teams, aiming to keep film and television production steady.

Hollywood Inc.

After Netflix finalized the purchase of Warner Bros., the Ellisons and their colleagues immediately started planning how to regain their footing.

Paramount is aiming to cut costs by simplifying the technology used for its streaming services, like Paramount+ and HBO Max, and by reducing expenses in areas such as office space, marketing, and general business operations. They’ll be focusing on streamlining technology and finding better deals with suppliers.

It’s currently unknown if Paramount will sell its long-standing property on Melrose Avenue, or if they’ll consolidate everything onto their existing studio lots in Burbank and Hollywood.

Workers are scattered throughout the region.

As a local, I’ve noticed how much of the entertainment industry is clustered here. HBO, now part of Warner Bros. Discovery, has its main West Coast offices in Culver City. CBS has a big presence too – their TV stations still use their old lot in Studio City, and the teams running CBS and Paramount’s cable channels work in a modern building near the famous Paramount movie studio on Gower and Sunset.

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What the Paramount-Warner Bros. Discovery deal means for the cable network CNN.

According to Standard & Poor’s, merging PSKY and WBD would result in a significantly more robust company than either one on its own. However, the deal is complicated by the fact that it involves three companies, and the smallest of them, Skydance, would ultimately be in charge.

Skydance Media, led by David Ellison, acquired Paramount, and the two companies are now known as Paramount Skydance.

Ellison has not announced what the combined company will be called.

Paramount shares closed down more than 6% Tuesday to $12.45.

Warner Bros. Discovery fell 1% to $28.20. Netflix added less than 1% to close at $97.70

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2026-03-04 01:01