Investors Punish Paramount Skydance (PSKY) Over Leverage Concerns as WBD Deal Nears Close

Key Takeaways

• Shares of Paramount Skydance fell as much as 9% intraday before closing down approximately 5%, despite a federal judge removing the final antitrust barrier to its Warner Bros. Discovery acquisition.
• The entertainment giant issued $41.4 billion in senior secured notes plus an $8.5 billion term loan to finance the transaction—a total exceeding its own market valuation.
• S&P Global Ratings cut Paramount Skydance’s credit rating to “BB” from “BB+,” citing projected leverage around 7.6 times EBITDA lasting until 2027.
• The transaction remains on track to complete October 6, with Ynon Kreiz set to serve as co-CEO of the merged entity.
• Warner Bros. Discovery shares held steady near $30.96, while Netflix declined 2% as the industry prepares for an enlarged competitor.

Paramount Skydance (PSKY) shares plunged Wednesday, dropping as much as 9% during the session before recovering to close approximately 5% lower around $9.80. The decline unfolded on what appeared to be a milestone day for the company.

Paramount Skydance Corporation Class B Common Stock, PSKY

A federal court granted approval to a multistate antitrust settlement, eliminating the final legal obstacle facing Paramount Skydance’s acquisition of Warner Bros. Discovery (WBD). Rather than rallying on the news, traders fixated on the transaction’s price tag.

The financing burden is substantial. Paramount Skydance completed pricing on $41.4 billion worth of senior secured notes—divided among first-lien, second-lien, and euro-denominated tranches—along with an $8.5 billion term loan facility.

To put that in perspective, the debt package exceeds the company’s market capitalization of approximately $10.77 billion. It represents an enormous amount of borrowed capital for a single acquisition.

S&P Global Ratings expressed concern about the numbers. The credit agency lowered Paramount Skydance’s issuer rating to “BB” from “BB+,” forecasting that leverage will begin near 7.6 times EBITDA and remain elevated through 2027.

Rising Rates Compound Borrowing Burden

Market conditions added another challenge. The 10-year Treasury yield surged to approximately 5.33%, reaching its highest level since 2002, which increases the carrying cost of that massive debt issuance.

The broader equity indices didn’t share the pain. The S&P 500 gained about 0.3% while the Nasdaq climbed roughly 0.25% on technology sector strength, indicating PSKY’s decline was company-specific rather than market-driven.

Wall Street analysts offered divergent views. Needham maintained a Hold rating, identifying net debt exceeding 4x EBITDA even after expected synergies as the primary concern. Citizens JMP Securities remained constructive, reaffirming a Market Outperform rating with a $14 price target, citing Ynon Kreiz’s designation as co-CEO of the combined organization as a positive catalyst.

The regulatory pathway is now unobstructed. Judge Araceli Martinez-Olguin approved the consent decree in litigation initiated by state attorneys general who contended the combination would consolidate excessive control over theatrical releases and television networks.

Paramount Skydance continues to target October 6 as the closing date for the Warner Bros. Discovery transaction.

Settlement Terms Impose Operating Constraints

The judicial approval includes conditions. The consent decree mandates minimum annual theatrical release quotas, a floor for domestic production expenditures, and prohibitions on disposing of or shuttering the Paramount and Warner Bros. studio facilities.

Additional provisions require independent cable-distribution negotiations for each channel portfolio and establish an editorial independence oversight board for CBS News and CNN. These stipulations constrain the company’s ability to pursue aggressive cost reductions while servicing its expanded debt obligations.

Warner Bros. Discovery shares showed minimal movement on the news, hovering near $30.96. Such stability is characteristic for acquisition targets approaching a transaction close, with limited uncertainty remaining to drive price action.

Netflix shares declined 2% to $68.34, falling alongside broader weakness in communications stocks. The Communication Services Select Sector SPDR ETF dropped 0.7%, while the SPDR S&P 500 ETF Trust edged down just 0.2%.

Walt Disney now confronts a substantially larger combined competitor, one uniting two major film studios, two news divisions, and two cable network groups. Market attention now shifts to October 6, when Paramount Skydance anticipates finalizing the merger.