S&P Global Ratings has indicated a forthcoming downgrade for Paramount Skydance's credit status, moving it deeper into speculative-grade territory. This adjustment is anticipated upon the completion of its merger with Warner Bros. Discovery. The firm's assessment highlights the substantial debt Paramount will incur, alongside prevailing uncertainties within the dynamic media ecosystem. Analysts point to the complexities of integrating numerous legacy operations and the disruptive influence of artificial intelligence on content creation as key factors impacting the combined entity's financial stability and ability to reduce leverage in the coming years.
S&P Global Projects Financial Headwinds for Paramount-Warner Bros. Discovery Post-Merger
On May 20, 2026, S&P Global Ratings officially communicated its intent to adjust Paramount Skydance's issuer credit rating from "BB+" to "BB" once its strategic acquisition of Warner Bros. Discovery (WBD) is finalized. This move reflects the rating agency's concerns regarding the substantial debt Paramount will assume, estimated at approximately $30 billion from WBD's existing obligations, in addition to the extensive financing secured for the merger itself. While Paramount recently optimized its long-term debt commitments from $54 billion to $49 billion in April, the combined entity is still expected to operate with a high degree of leverage.
S&P Global's outlook projects that the leverage ratio (adjusted debt to adjusted EBITDA) for the newly formed Paramount-WBD will remain elevated, reaching an estimated 7.6x in 2026, and is not expected to fall below 5x until 2029. This cautious forecast stems from the inherent risks associated with integrating disparate operations and the potential for unforeseen challenges in a rapidly evolving media landscape. The firm noted that the media and entertainment sector has a history of large mergers failing to deliver anticipated benefits or taking longer than projected to achieve synergies and full integration.
The ratings advisory from S&P Global further emphasized that all core businesses within the merged Paramount-WBD face "seismic challenges." The increasing fragmentation of consumer media consumption, which diminishes cultural impact, and the accelerating role of artificial intelligence in blurring the lines between professionally produced and user-generated content, were cited as significant pressures. Despite Paramount's optimistic projections of realizing over $6 billion in cost synergies from the merger, S&P Global indicated it would only incorporate these savings into its analysis once they are tangibly realized, considering the upfront costs of achieving such efficiencies would likely depress EBITDA and free cash flow in 2026 and 2027.
The combined entity will encompass the operations of six distinct legacy companies—Time Warner, Discovery Communications, Scripps Networks, CBS, Viacom, and Skydance—many of which have yet to be fully integrated. Expected layoffs within the new company are primarily attributed to the consolidation of linear TV operations and the streamlining of corporate overhead. Additionally, a significant portion of the cost synergies is anticipated to arise from real estate optimization, process enhancements, and the consolidation of direct-to-streaming services onto a unified technological platform. S&P Global also foresees a decline in revenue for PSKY-WBD's linear TV business, expecting the company to manage this segment for margins by continually reducing content costs, despite factoring in increased NFL programming rights expenses.
The merger, valued at nearly $111 billion, is slated for completion in September 2026, pending regulatory clearances in Europe and reviews by several U.S. state attorneys general, including California's Rob Bonta, who may raise antitrust concerns.
This impending credit downgrade serves as a stark reminder of the complex financial and operational hurdles inherent in large-scale corporate mergers, particularly within a volatile and competitive industry like media. The significant debt burden, coupled with the challenges of integrating diverse business units and navigating a transforming market, suggests that the path to stability and profitability for the combined Paramount-WBD will be arduous. For investors and stakeholders, S&P Global's assessment underscores the importance of scrutinizing not just the potential for synergy, but also the realistic timeline and costs involved in achieving it, as well as the resilience of the merged entity against broader economic and technological shifts.
