Paramount credit downgraded to 'junk' status over debt worries

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Paramount Skydance’s jubilation over its come-from-behind victory to claim Warner Bros.Discovery has entered a new phase: Call it the deal-debt hangover.

Two major ratings agencies have raised concerns about Paramount’s credit because of the enormous debt the David Ellison-led company will have to shoulder — at least $79 billion — once it absorbs the larger Warner Bros.Discovery, bringing CNN, HBO, TBS and Cartoon Network into the Paramount fold.

Fitch Ratings said Monday that it placed Paramount on its “negative” ratings watch, and downgraded its credit to BB+ from BBB-, which puts the company’s credit into “junk” territory.Fitch said it took action due to “uncertainty” surrounding Paramount’s $110-billion deal for Warner Bros.

Discovery, which the boards of both companies approved on Friday.S&P Global Ratings took similar action.

To finance the Warner takeover, Ellison’s billionaire father, Larry Ellison, has agreed to guarantee the $45.7 billion in equity needed.Bank of America, Citibank and Apollo Global have agreed to provide Paramount with more than $54 billion in debt financing.“Potential credit risks include the prospective debt-funded structure, Fitch’s expectation of materially elevated leverage and limited visibility on post-transaction financial policy and capital structure,” Fitch said.Late last week, Paramount sent $2.8 billion to Netflix as a “termination fee” to officially end the streaming giant’s pursuit of Warner Bros.

That payment paved the way for Warner and Paramount’s board to enter into the new merger agreement.Hollywood Inc.

Paramount chief David Ellison, who has pursued Warner Bros.since the fall, said he was pleased Warner’s board ‘unanimously affirmed the superior value of our offer.’Paramount hopes the merger will be wrapped up by the end of September.

It needs the approval of Warner Bros.Disco...