Fitch downgraded Paramount and kept the rating on negative watch amid competitive pressures across the media sector and continued headwinds in free cash flow (FCF) against the backdrop of the Warner Bros. Discovery acquisition.
The credit rating agency downgraded the Long-Term Issuer Default Ratings (IDRs) of Paramount Skydance and Paramount Global from ‘BBB-‘ to ‘BB+’. Fitch has placed all ratings on negative rating watch given the uncertainty surrounding the proposed acquisition of Warner Bros. Discovery, Inc. (WBD).
“Potential credit risks include the forward-looking debt-financed structure, Fitch’s expectation of materially high leverage, and limited visibility into post-transaction financial policy and capital structure,” the statement said.
Leverage and Free Cash Flow may remain outside Fitch’s negative sensitivities longer than expected, Fitch says. It also incorporates the increased risk that financial and leverage targets could deteriorate amid ongoing industry pressures and the pending acquisition of WBD.
Fitch expects the transaction, if completed, to result in significantly higher leverage given PSKY’s $58 billion debt commitment. Fitch calculates that pro forma leverage could go up to 6x (excluding synergies). Fitch expects the deleveraging to depend on sustained EBITDA growth, delivery of synergies and improved free cash flow generation, which could be challenging considering the scale of integration and restructuring required.
