Paramount Global, a media conglomerate, has had its debt rating downgraded to junk status by credit-rating agency S&P Global. The agency cited ongoing challenges with free cash flow generation relative to debt as the reason for the downgrade. S&P expects Paramount Global’s free operating cash flow-to-debt to remain below 10% through 2025 and adjusted leverage to stay above 3.5 times during that time period. The downgrade was attributed to the deterioration of the linear television ecosystem and elevated investments for its direct-to-consumer streaming model.
The agency stated that Paramount Global will need to substantially improve streaming losses over the next two years to mitigate further downside ratings pressure. The company’s long-term debt was $14.6 billion as of the end of 2023. As part of the ratings update, S&P issued a “stable outlook” for Paramount Global, anticipating leverage to decline to around 4.0X in 2024 with FOCF/debt improving to about 5% as streaming segment losses decrease. This is based on the assumption that streaming losses will improve by more than $700 million due to strong average revenue per user growth and ongoing subscriber growth.
Previously, S&P had placed Paramount Global on “credit watch negative” on February 23 and had a “BBB-” rating on the company, which is its lowest investment-grade rating. However, with the recent downgrade, S&P now has an issuer credit rating on Paramount Global and its senior unsecured debt of “BB+”, the highest speculative-grade according to market participants. Additionally, S&P lowered its issue-level rating on Paramount Global’s junior subordinated debt to “BB-” from “BB” and its short-term rating to “B” from “A-3.”
In summary, the downgrade of Paramount Global’s debt rating to junk status by S&P Global was due to ongoing challenges with free cash flow generation relative to debt, as well as the company’s struggles in the linear television ecosystem and investments in its direct-to-consumer streaming model. Paramount Global will need to substantially improve streaming losses over the next two years to prevent further ratings pressure. Despite the downgrade, S&P issued a stable outlook for Paramount Global with expectations of improved leverage and cash flow by 2024. The company’s long-term debt as of the end of 2023 was $14.6 billion. The recent downgrade by S&P has lowered ratings on Paramount Global’s debt, including a downgrade of its junior subordinated debt and short-term rating.
