Paramount offices in Times Square.
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Credit agencies are considering Paramount Global, which recently completed a deal that will hand control of the entertainment giant to David Ellison’s Skydance.
Moody’s warned in a note that it would review Paramount’s ratings for downgrade, a move that would move the company’s debt to “junk” status.
“The downgrade review is driven by ongoing secular pressures on the company’s television networks and slow pace of achieving scale in direct-to-consumer (DTC) streaming and Paramount’s announced deal to merge with smaller independent film and TV studio Skydance,” the credit agency warned in the note, published Tuesday morning.
“Moody’s believes the company will seek to build its own franchise as outlined in the Skydance Consortium’s new strategic plan. However, without more intellectual property such as a growing franchise to develop or a larger investment by Paramount, we believe the company may remain at a competitive disadvantage,” the note continued. “Therefore, a new, materially different strategy may be required or the initial investment into the company by the Skydance consortium may not be sufficient to stabilize the credit profile. As a result, it is possible that we could downgrade the ratings in the coming months, well before the pending merger closes.”
In other words, even if Skydance has a plan, it’s still a long way off before the deal closes, and the pressure on Paramount’s linear business could force Moody’s hand. As such, the deal, once closed, would inject cash into the balance sheet, which would help it reduce debt. And RedBird’s Andy Gordon told analysts on Monday that “we expect to be investment grade by all the rating agencies around 2026 and you could see a debt profile reduction from about 4.3x today to 2.4x in 2027.”
Meanwhile, S&P Global, which downgraded Paramount’s debt to junk in March, released its own note on Tuesday, stating that while it views the Skydance deal “positively,” it is taking a wait-and-see approach to what it means for the company’s debt.
“For now, the issuer credit rating remains at ‘BB+’ with a stable outlook until further information becomes available,” S&P wrote.
“We view these initial comments positively, but note that we will continue to evaluate the transaction as more details emerge and will ultimately evaluate the impact to Paramount’s credit quality based on management’s ability to execute its strategy,” the note continued. “The company expects the transaction to close in the first half of 2025. The 14-month timeline to closing presents potential risks to the company as worsening secular industry pressures (and potential macroeconomic headwinds) could hinder the company’s ability to achieve its strategic and financial goals.”
Skydance won the race for Paramount on Sunday, with Shari Redstone agreeing to sell her National Amusements to the consortium, which also includes RedBird Capital and Larry Ellison. But as S&P noted, regulatory approval could take a year or more, posing serious risks in a fast-moving industry.
Ellison, for his part, said THR that the existing leadership will have the strength to implement the strategic plan for the time being.
“Given how dynamic the landscape is, we think it’s really important for companies not to be paralyzed in any way, shape or form, and certainly, for those conversations to continue and for them to be explored and we’ll obviously be part of the decisions that are made within all the appropriate guidelines,” Ellison said.
Paramount has no material near-term debt maturities and $3.5 billion in untapped revolver funds, giving it flexibility until the deal closes.
