- Paramount Skydance has completed roughly $52 billion of debt financing for its Warner Bros. Discovery acquisition as elevated bond yields push borrowing costs higher.
Paramount Skydance Corp. (NASDAQ: PSKY) has secured roughly $52 billion of debt financing for its planned acquisition of Warner Bros. Discovery Inc. (NASDAQ: WBD), clearing a major financing hurdle just days before the companies are expected to complete their $110 billion transaction.
The financing was assembled across investment-grade bonds, high-yield debt and leveraged loans during a difficult period for global bond markets. Bloomberg reported that the package includes about $30 billion of US dollar investment-grade debt, $12.4 billion-equivalent of junk bonds and $9.46 billion of loans.
The final structure comes with substantial borrowing costs. Paramount's longest-dated first-lien note, due in 2066, carries an 8.90% coupon, while its second-lien notes include securities paying as much as 9.125%.
Paramount announced the pricing on Sept. 30, with the securities expected to settle on Oct. 5. The company plans to use the financing alongside equity proceeds and other previously arranged facilities to fund the Warner Bros. acquisition.
Paramount's Warner Financing Faces Higher Interest Costs
The scale of the financing makes it one of the largest corporate debt transactions of the year, but the timing has made the transaction considerably more expensive than it might have been under calmer credit-market conditions.
US Treasury yields have climbed sharply. The 10-year Treasury yield reached 5.34% on Oct. 1, its highest level since 2002, according to Reuters. Rising government-bond yields generally increase the rates companies must offer investors when issuing new debt.
Paramount's financing illustrates that pressure directly. Its first-lien securities carry coupons ranging from 6.30% for notes due in 2028 to 8.90% for notes due in 2066. The second-lien securities carry coupons of 8.25%, 8.875% and 9.125%, depending on maturity and currency.
The financing also comes after months of reliance on bridge commitments. Paramount had previously secured $54 billion of debt commitments, including a $49 billion 364-day secured bridge facility that was intended to be replaced with permanent financing before or around the merger closing.
The company began marketing the permanent debt after the legal path toward the Warner Bros. transaction became clearer. Paramount announced on Sept. 28 that it planned to issue about $44.4 billion of senior secured notes, supplemented by term loans and previously arranged financing.
The latest debt package therefore represents more than simply another step toward closing the acquisition. It replaces temporary financing commitments with longer-term obligations that will remain on the combined company's balance sheet.
That matters because Paramount expects the combined business to carry significant leverage after the transaction. In its merger announcement, the company said the deal would be funded with $47 billion of equity and projected more than $6 billion of annual synergies. Paramount also projected a 4.3-times net debt-to-EBITDA ratio at closing on a fully synergized basis.
The company expects those cost savings to come from areas including technology integration, procurement and operational efficiencies.
$110 Billion Warner Deal Moves Toward October 6 Closing
The debt financing arrives as Paramount and Warner Bros. Discovery approach their expected Oct. 6 closing date. A federal judge recently approved a settlement involving Paramount and 12 states that had challenged the acquisition on antitrust grounds. The agreement removed a major legal obstacle to the transaction and allowed the companies to proceed toward closing.
The deal will combine Paramount's film and television operations with Warner Bros., HBO Max, CNN, and other major entertainment assets. The combined company is expected to operate under the Skydance name after the transaction closes.
Paramount is also changing its leadership structure ahead of the merger. David Ellison will remain chairman and CEO, while Mattel Inc. (NASDAQ: MAT) CEO Ynon Kreiz is expected to become co-CEO and focus on day-to-day operations and integration.
For shareholders, the financing creates a more complicated capital structure. Paramount's own filings show that the company expects to replace the bridge commitments with permanent secured debt, while the acquisition itself is supported by substantial equity commitments from the Ellison family and other investors.
The transaction is also taking place against a backdrop of unusually high long-term borrowing costs. Recent Treasury-market volatility has pushed yields higher, adding pressure to companies that need to refinance or raise large amounts of capital.
That environment is particularly relevant for Paramount because the Warner Bros. acquisition is heavily dependent on financing. The company's ability to realize the projected cost savings and reduce leverage will therefore become an important part of the post-merger financial story.
The immediate financing risk has largely been addressed. Paramount now has its permanent debt package in place ahead of the expected Oct. 6 closing. The larger question is what that debt will mean for the combined company's financial flexibility once the Warner Bros. transaction is complete.