Paramount’s Times Square offices.
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Credit reporting firms are closely watching the company, which just completed a deal to transfer control of entertainment giant Paramount Global to David Ellison’s Skydance.
Moody’s has put Paramount’s ratings on review for downgrade and warned that if that were to happen, the company’s debt could be rated at “junk” bond level.
“The consideration for downgrade is triggered by continued secular pressure on the company’s television networks, a slow shift toward greater scale in direct-to-consumer (DTC) streaming, and Paramount’s agreement to merge with Skydance, a smaller independent film and TV studio,” the credit research firm warned in a report published Tuesday morning.
“Moody’s believes the company will seek to build on its franchises as outlined in the Skydance Consortium’s new strategic plan. However, we believe that without more compelling IP, such as additional evergreen franchises or further investment from Paramount, the company may remain at a competitive disadvantage,” the report continued. “Therefore, a significantly different new strategy may be required or the Skydance Consortium’s initial investment in the company may not be sufficient to stabilize the credit profile. As a result, we may lower the ratings in the coming months, well before the expected merger is completed.”
In other words, Skydance has a plan, but the deal is a long way from closing, and existing pressure on Paramount’s linear business could pressure Moody’s into a decision. That said, if the deal does close, it will inject cash into the balance sheet and help deleverage. And Redbird’s Andy Gordon told analysts on Monday that “we expect to be rated investment grade by all rating agencies sometime in 2026, and we would see a deleveraging profile of 2.4x by 2027, down from about 4.3x today.”
Meanwhile, S&P Global, which downgraded Paramount’s debt to junk status in March, released its own report on Tuesday saying it views the Skydance deal “positively” but is taking a wait-and-see approach on how it will impact the company’s debt.
“At this time, the issuer’s credit rating remains at ‘BB+’ with a stable outlook pending further information,” S&P wrote.
“While we view the initial comments positively, we will continue to evaluate the transaction as details emerge and, ultimately, the impact of management’s ability to execute on its strategy on Paramount’s creditworthiness,” the memo continued. “We expect the transaction to close in the first half of 2025. The 14-month timeline to close poses potential risks to the company as worsening secular industry pressures (and potential macroeconomic headwinds) could impede the achievement of our strategic and financial objectives.”
Skydance won its battle with Paramount on Sunday, when Shari Redstone agreed to sell National Amusements to a consortium that also includes RedBird Capital and Larry Ellison. But as S&P noted, regulatory approval could take a year or more, a real risk in a fast-changing industry.
Meanwhile, Ellison told THR that for the time being, the current management team will have the authority to execute the strategic plan.
“Given how dynamically changing the situation is, we think it’s really important that the company doesn’t become paralyzed in any way, and of course those conversations will continue and will be considered and we will be involved in any decisions that are made within the appropriate guidelines,” Ellison said.
Paramount has no significant debt maturing in the near future and an unused $3.5 billion revolving credit facility, giving it some flexibility until the transaction closes.
