Superman, Harry Potter and a Pile of Debt: What Paramount Won in WBD Settlement

David Ellison has reeled in his prize catch, which he hopes doesn’t end up being the commercial white whale it was for both Discovery and AT&T.

After reaching a settlement Monday with the 12 state attorneys general seeking to block the acquisition, Ellison’s Paramount hopes to seal the deal to take over the storied Hollywood studio in about two weeks. That means ownership of valuable intellectual property such as Batman and Game of Thrones. As well as a massive, roughly $80 billion debt load just as the cost of borrowing is once again on the rise.

Felix Felicis?

According to unwritten Hollywood rules, the third chapter in any trilogy must be the biggest and most bombastic. The recent run of WB acquisitions seems no different. AT&T acquired the studio back in 2018, and balked after less than four years of servicing an initial $180 billion debt load that came in at about 2.9 times EBITDA. Discovery moved on a similar timeline, shopping itself around town after roughly four years of servicing an initial debt load of about $55 billion, or about 4.3 times EBITDA. 

When all is said and done, the resultant Paramount-WBD conglomerate’s $80 billion debt load will be equal to roughly 6.5 times EBITDA, according to most estimates. Ellison says he has a plan to define the media giant beyond its credit card bill, though ratings agencies are somewhat skeptical:

• Back in March, after Paramount won the WBD bidding war, Fitch downgraded the company’s debt from BBB- to BB+, a “junk” rating. S&P lowered the company’s debt rating before the deal, while Moody’s has it on review for a downgrade to junk status.
• Ellison and his executives, meanwhile, have told investors that they can reduce the debt load to just three times its annual EBITDA within three years, banking on some $6 billion in post-merger synergies.

30 for 30: Still, a successful turnaround will require some content home runs. And thanks to the settlement terms, Paramount will be required to take a lot of swings at the plate. Under the deal, Paramount-WBD must release 30 films theatrically in each of its first two years, and 32 films in each of its next three years. At least 20% of those films must be potential blockbusters or “tentpole” releases, though that’s something that may be as much of a wish as a pledge for Paramount, which hasn’t had a $1 billion-grossing film since 2022’s Top Gun: Maverick.