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Paramount risks cut to junk by Moody’s after Skydance deal

The Paramount Studios in Los Angeles, California, US on Monday, April 29, 2024. The Redstone family and independent film producer David Ellison have both offered concessions to make a possible change in control at Paramount Global more appealing to the company's other investors, according to a person familiar with the talks. (Eric Thayer/Bloomberg)

(Bloomberg) -- Paramount Global may have its credit rating cut to junk by Moody’s Ratings after the company agreed to sell itself to Skydance Media, with the bond grader citing “significant secular pressures” on Paramount businesses.

Moody’s placed Paramount’s ratings — including its Baa3 senior unsecured notes rating — on review for downgrade, according to a statement on Tuesday. While the transaction clearly has positive credit attributes, Moody’s said it expects Paramount to face “existential pressure” to transition its content aggregation and distribution to direct-to-consumer.

“To fully mitigate the losses that will occur over time in the legacy businesses, streaming revenues will need to double their linear revenues to match the same Ebitda unless they significantly increase the ad support, a challenging feat for Paramount,” Moody’s said in the statement.

S&P Global Ratings downgraded Paramount to junk in March, citing “ongoing deterioration of the linear television ecosystem and the elevated investments for its direct-to-consumer streaming model.” A second downgrade would place Paramount debt firmly within junk territory, and cause it to be removed from many high-grade indexes.

Paramount, the parent of CBS, MTV and other channels, agreed to combine with Skydance Media in a deal that hands control of the storied Hollywood studio to producer David Ellison, ending one of the industry’s most dramatic acquisitions. As part of the complicated deal that was months in the making, Paramount Chair Shari Redstone agreed to sell her family’s National Amusements Inc., which controls about 77% of the voting stock in Paramount, for US$2.4 billion.

The company last sold debt in the US high-grade bond market in 2022, amounting to $1 billion of 40-year notes. It had amassed about $15.8 billion of long-term debt — including bonds and leases — at the end of the first quarter, according to a quarterly filing.

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