lowell
Well-Known Member
Yeah, you can take a calm and measured reaction to every bit of news that comes out. Whatever they're doing here seems like they're yelling "The sky is falling!".
But it looks like banks and credit agencies could even see that the WarnerDiscovery pursuit isn't really financially digestible and the Ellisons went to preempt the agencies from lowering down Skydance's credit ratings by any means possible:
"It began as a concession in private conversations to assuage wary credit analysts looking at Paramount Skydance Corp.’s blockbuster takeover of Warner Bros. Discovery Inc.: a verbal pledge by the Ellison family to do whatever it takes to slash debt at the combined company.
Then Wall Street forced it into the open.
To ease those concerns, Paramount Chief Executive Officer David Ellison privately promised ratings agencies including S&P Global Ratings that the family — which controls Paramount — would step in to tame leverage at the merged entity. The credit graders then pushed for that commitment to be made public and sure enough, Paramount revealed it in a regulatory filing last week.
“It was a verbal comment from David Ellison,” said Naveen Sarma, sector lead for US media and telecom at S&P. “I think all the agencies, and certainly us, insisted on a public disclosure as well.”
Yet the public disclosure proved decisive for S&P, which viewed the wealthy family’s backstop as a tacit commitment to inject additional capital if needed.
While S&P has said it expects to lower the post-merger company’s rating by one notch to BB, Sarma noted that without the family’s backstop, the expected rating would have gone down by two notches.
“When we came up with our rating, the disclosure on the leverage commitment and the potential for them to do equity, if they need, was a very strong part of that,” Sarma said. “From our standpoint, it’s a pretty powerful statement.”
In Paramount’s May 19 filing — which detailed other elements of the deal’s financing — the company added a section titled “Commitment to Deleveraging.” It disclosed that it told certain ratings agencies it was “Paramount’s and its controlling stockholder’s plan and commitment” to reduce leverage at the combined company to specified targets over the coming years.
Paramount expects the entity’s net debt to sit at 4.3 times earnings at closing, before dropping to three times within three years via cost-cutting and other synergies. But analysts are skeptical that these measures alone can achieve such targets.
“Based on what we know about the industry, and using a rough calculation, we don’t think their target for net debt can be reached only by improving profit margins,” said Wunmi Adekanmbi, an analyst at Fitch Ratings. “We assume they are also planning to pay down some debt.”
Fitch expects gross debt — meaning total debt before subtracting cash on hand — to be about seven times annual cash earnings after the merger, though Adekanmbi said that number could fall after accounting for the deal’s savings and efficiencies.
CreditSights, meanwhile, said earlier this month that post-merger leverage could rise to about five times annual cash earnings, which its analysts deemed a “frightening level.”
“The structure introduces complications that investors might be a little wary to deal with,” said Jim Fitzpatrick, head of US investment grade research at Allspring Global Investments. “They’re going to have to make this quite attractive to build a book that’s going to be able to handle the size they want to get done.”"
Ellison Privately Vows to Keep Enlarged Paramount’s Debt in Line
It began as a concession in private conversations to assuage wary credit analysts looking at Paramount Skydance Corp.’s blockbuster takeover of Warner Bros. Discovery Inc.: a verbal pledge by the Ellison family to do whatever it takes to slash debt at the combined company.
www.bloomberg.com
I'm not surprised if Oracle taking on large amounts of debt for its AI & data center buildout investments with OpenAI was a factor in this, considering its stock is used as loan collateral for the pursuit.
Last edited:
