Paramount Debt Is Cut to Junk on Deteriorating Outlook for TV

Michael Tobin and Rob Golum, Bloomberg News

The Paramount Global headquarters in New York, US, on Thursday, Dec. 21, 2023. Warner Bros. Discovery Inc. held talks on a possible merger with Paramount Global, potentially combining two of the biggest media companies in the world, according to people with knowledge of the matter. Photographer: Gabby Jones/Bloomberg , Bloomberg

(Bloomberg) -- Paramount Global’s debt rating was cut to junk by S&P Global Ratings, which cited pressure on cash flow because of the continued decline in the company’s broadcast and cable TV business.

S&P reduced its rating on Paramount debt to BB+ from BBB-, according to a statement Wednesday. The company, the parent of CBS and MTV, had $14.6 billion in long-term debt at year end.

The company’s bonds declined after the downgrade. Its 6.375% notes due 2062 widened 18 basis points to 499 basis points over the benchmark, according to pricing source Trace.

The film and TV giant, controlled by the Redstone family, has been weighing potential buyer interest in the company. Board Chair Shari Redstone and her representatives have considered a sale of her family holding company, National Amusements Inc., which holds their Paramount shares, to independent producer David Ellison.

Separately, Apollo Global Management Inc. offered to buy Paramount Global’s Hollywood studio for about $11 billion, according to a person with knowledge of the situation. Independent media mogul Byron Allen has proposed to buy the entire company.

The credit downgrade likely nullifies a change-of-control provision in Paramount’s senior notes that would trigger a buyback at 101 cents on the dollar following an acquisition, CreditSights analysts led by Hunter Martin wrote in a note. That option still remains for its junior notes, which have a looser definition of the implications of a downgrade event, they wrote.

Removing the change of control provision in the bonds “increases the likelihood that the company is acquired by a financial buyer” because a sale would require less funding, they wrote. That sale could be “disastrous” for senior bondholders due to weak borrowing contracts that could see them pushed further down the repayment line or allow assets to be sold and the proceeds not given to bondholders, according to the note.

Paramount declined to comment on the downgrade.

S&P said in its statement that Paramount’s free cash flow is expected to remain below 10% of debt beyond 2025, and that the company must “execute its plan to substantially improve streaming losses over the next two years to mitigate further downside ratings pressure.”

The ratings company expects “some stabilization” of the traditional TV business, thanks to political advertising in a presidential election year and Paramount having aired the Super Bowl in the first quarter.

Earlier this month Paramount agreed to sell its 13% stake in its Indian TV business to its partner, Reliance Industries Ltd., for $517 million. It was the latest in a series of asset sales.

The company still carries an investment-grade rating from Fitch Ratings and Moody’s Ratings.

--With assistance from Thomas Buckley.

(Updates to include bond pricing, change of control commentary and company outreach beginning in paragraph three.)