Skydance Credit Rating Downgraded by Fitch on Massive Debt in Wake of Paramount-Warner Bros. Merger

The new Skydance‘s ability to repay its massive debt following the megamerger of Paramount and Warner Bros. Discovery is being called into question by credit rating agency Fitch.

Led by CEO David Ellison, Skydance opened for business Tuesday with a nearly unprecedented level of debt for a large media M&A transaction at around $80 billion. By comparison, when Discovery Communications bought WarnerMedia from AT&T, it assumed $43 billion of AT&T’s debt, leaving the new WBD with about $53 billion in gross debt as of June 2022.

Per a note issued by Fitch Ratings on Monday — one day before the Paramount-Warner Bros. deal officially closed and the common stock of the unified company, renamed Skydance Corp., began trading on the New York Stock Exchange — the ratings firm downgraded Paramount Skydance’s long-term issuer default ratings (IDRs) from BB+ to BB as a result of the merger.

The Fitch BB+ rating is the firm’s highest non-investment grade rating (so Paramount’s debt already carried a a high-yield or “junk” rating), and BB reduces that one level. The rating downgrade means Fitch sees Skydance as having “elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time.” But with the rating level, Fitch still notes there is enough flexibility to allow for debt repayment.

Per Fitch, the “downgrade reflects materially higher leverage after the acquisition and significant execution and integration risks” as well as “uncertainty about the company’s ability to achieve its stated synergies, which are material to its deleveraging target.” The firm says the newly merger entity “faces structural pressure on linear revenues, streaming competition and hit-driven content risk.”

The other two major credit rating firms, Moody’s and S&P Global Ratings, have not yet issued new evaluations of the combined company’s financial outlook since making predictions last week.

In a Sept. 29 note, Moody’s rated Skydance’s debt overall at Ba3, which is one notch below investment grade. That investment rating means the company pays higher interest rates in most cases for the credit facilities and short-term borrowings that are a normal course of business for large enterprises.

On Oct. 2, S&P Global gave Skydance slightly higher ratings, which at the time were in line with Fitch’s insights. S&P Global and others calculate Skydance in 2026 and 2027 as having a net-debt-to-adjusted-earnings ratio of 7. The goal would be to bring that down to 3x or less by 2029.