Yahoo Finance Ratings Agencies Call Skydance, Paramount Merger Positive But See Risks In Long Lead Time, Linear TV Declines
S&P Global Ratings, the first to wave a red flag about Paramount’s finances last fall, today called the planned merger with Skydance “positive” but said it will continue to monitor the transaction, citing concern over the long lead time amid the ongoing decline of linear television.
For now, the issuer credit rating remains ‘BB+’ with a stable outlook until more information is available, the agency said.
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The other big ratings agency, Moody’s, put Paramount’s debt rating on review for downgrade, also calling the transaction positive but saying Paramount will continue to be be squeezed by the industry’s transition to streaming.
In a public call with investors yesterday, the Skydance team led by David Ellison unveiled plans to strengthen Paramount’s business by spending on content, managing linear TV, and improving its streaming metrics, in part through tech investments and partnerships. They anticipate $2 billion in cost savings and are planning a $1.5 billion cash infusion to strengthen Par’s balance sheet. They expect the deal to close in the third quarter of 2025.
“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 by management’s ability to execute its strategy. The company expects the transaction to close in the first half of 2025. The 14-month timetable to closing presents a potential risk for the company as worsening secular industry pressures (and the potential for macroeconomic headwinds) could impede the company’s ability to achieve its strategic and financial targets,” wrote S&P’s Naveen Sharma in a note today.
Ellison, who will be CEO of the combined company, said that cost cuts, assets sales and other strategic initiatives set by Par’s current CEO trio of Brian Robbins, George Cheeks and Chris McCarthy will continue as the merger works its way through.
Skydance and Paramount announced their merger late Sunday night after months of on-and-off negotiations. The $8 billion deal will see Skydance buy the Redstone family holdings company National Amusements, which controls Paramount, which will then acquire Skydance in an all-stock deal. There’s a 45-day “go shop” period for other interested buyers to jump in the ring. If the current deal falls through, Skydance gets a $400 million breakup fee.
“Our historical concerns for Paramount, which led to our previous ratings actions, were driven by the company’s operating struggles, which ultimately translated to weaker-than-expected credit metrics. Similarly, our assessment of the company, post the transaction closing, will be driven by Skydance’s ability to improve Paramount’s operating metrics, which could lead to lower leverage and improved cash flow.”
Paramount is heavily indebted and currently below investment grade, and Skydance has said getting that back is a key priority. It’s leverage must fall for that to happen.
The Skydance team anticipated Paramount will have an investment grade rating by all ratings agencies sometime in 2026 and see leverage fall from about 4.3x now to 2.4x by 2027. Paramount’s debt is all fixed rate, it has no material near term debt maturities, and had an untapped $3.5 billion revolving credit facility.
Even so, given the ongoing secular headwinds affecting the global media and entertainment industry, in particular, the decline in the pay-TV bundle, the shift of advertising away from legacy media platforms, and changing studio model, S&P said it could reassess its “ratings thresholds for Paramount and for its industry peers.”
“In the coming months, we will look to better understand Skydance’s strategy and plans for the combined company as well as the financing details of the transaction. In addition, we would need to understand the ownership breakout between the Ellison family and RedBird Capital as we consider RedBird a financial sponsor, which could factor into our assessment of the financial policy of the combined company going forward.”
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