Moody’s Investor Services is warning that Warner Bros. Discovery remains under review for a possible downgrade to its credit ratings despite its $82.7 billion deal with Netflix for its studio and streaming assets.
Under the terms of the deal, Netflix will assume roughly $10.7 billion of WBD’s net debt and issue $11.7 billion in equity to WBD shareholders. The deal is expected to close within the next 12 to 18 months, following WBD’s separation of Discovery Global in the third quarter of 2026.
Discovery Global, which will house cable networks such as CNN, TNT and Discovery-branded channels, will retain WBD’s remaining debt. Moody’s said it would “operate with elevated leverage despite strong free cash flow generation and continue to face long-term secular pressures.”
Meanwhile, the firm changed its credit outlook on Netflix from stable to positive and affirmed the company’s A3 senior unsecured notes ratings and Prime-2 short-term commercial paper program rating.
The A3 rating means that Netflix’s debt has an upper-medium grade, low credit risk, indicating a strong ability to repay, but with slightly more risk than higher A-rated bonds. The Prime-2 rating signifies a strong ability to repay short-term debt, placing it as “investment-grade” but below the superior Prime-1 (P-1) tier, indicating good liquidity, reliable cash flow and access to funding.
Moody’s said the ratings reflect Netflix’s strong operating performance, solid execution and the benefits it will gain from acquiring Warner Bros.’ assets. It added that the outlook to stable reflects governance considerations, including the “substantial increase in debt and financial leverage expected at the close of the acquisition.” Moody’s expects Netflix will reduce leverage to around 2.5 times within two years of closing.
Netflix will pay a $5.8 billion breakup fee if the acquisition fails to secure regulatory approval and WBD will be on the hook for a $2.8 billion breakup fee if it accepts a higher offer.
Moody’s also said that Paramount’s $108.4 billion hostile takeover bid “comes with significant risk, but makes strategic sense.”
“The combination would be transformative, dramatically enhancing Paramount’s scale, diversifying revenue and improving margins. Yet it would present significant execution and integration risks, materially increase pro forma leverage at close and introduce complexity into the debt structure,” Moody’s senior vice president Jason Cuomo and associate managing director Lenny Ajzenman wrote.
“Achieving synergies, consolidating technology platforms and aligning pricing, distribution and other strategies would require substantial time and investment, all amid rapid industry and technological shifts,” the pair continued. “Also, regulatory scrutiny could delay closing or require concessions, given the competitive implications in consolidating major news operations and film studios.”
At the same time, Moody’s estimated that a combined Paramount-WBD’s debt would be near $92 billion at close and that the majority could be secured based on the current structure of the two companies and planned acquisition financing.
“If so, Paramount’s existing unsecured debt (including its Baa3 rated senior unsecured debt and Ba1 rated junior subordinate debt) would be primed which could cause the ratings to be downgraded,” the firm added. “We believe pro forma closing leverage for the combined company would likely be very high, in the low 7x range debt-to-EBITDA but could fall quickly with the repayment of debt with all free cash flow and realization of most cost savings over a period of years following the close.”
The tender offer will be open for 20 business days, or until Jan. 8, and Warner Bros Discovery’s board will need to respond with a recommendation within 10 business days, or by Dec. 22. Under the terms, shareholders have withdrawal rights that expire at 5 p.m. ET on Jan. 8. Those rights would be extended if Paramount extends the tender offer.
Paramount has agreed to pay a $5 billion breakup fee in the event its deal is not approved by regulators. It expects regulatory approval within 12 months and has already filed for Hart-Scott-Rodino (HSR) approval in the United States for its bid and announced the case to the European Commission to begin discussions.
If approved, the combined Paramount-WBD would target $6 billion in cost savings aimed at areas such as back office, finance, corporate, legal, technology and infrastructure. It would also have $70 billion in revenue, $16 billion in EBITDA, $10 billion in cash flow, 207 million streaming subscribers and target over 30 theatrical releases per year.
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