Skydance may not be able to rescue paramount from junk-bond status

Wall Street has reacted well to Sunday’s approval by a special Paramount Global committee to allow David Ellison’s Skydance Media to take over the conglomerate in a complicated deal valued at around $8 billion.

Amid declarations of cost-cutting and reinvestment in the entertainment company, share prices are still up more than 13% vs. just before it was reported last week that Ellison was back in discussions to purchase Paramount.

But the major credit rating agencies say Ellison’s revival plan might not be enough to stave off another downgrade, which would place Paramount into junk territory.

“The review for downgrade is prompted by the ongoing secular pressures on the company’s television networks and the slow pivot to reach direct-to-consumer streaming scale and Paramount’s announced agreement to merge with a smaller scale independent film and TV studio in Skydance,” Moody’s said in a note, published Tuesday morning.

“Moody’s believes that the company will endeavor to build on its own franchises as outlined in the Skydance Consortium new strategic plan,” the note added. “But without much more avid IP such as more evergreen franchises to build on or heavier investment by Paramount, we believe that the company may remain competitively disadvantaged. Therefore, either a new materially different strategy is needed or it is possible that the initial investment into the company by the Skydance consortium may not be sufficient to stabilize the credit profile. As a result, it is possible we could downgrade the ratings in the coming months, well before the pending merger closes.”

S&P Global, which downgraded Paramount to “BB+” status in March, plans to keep the company there … for the time being.

“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,” a Tuesday S&P investor note said. “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.” Finance