Even Paramount's Debt Rating Is Now 'Junk'

The credit-ratings agency S&P Global just threatened to turn Paramount Mountain into Paramount Hillock.

Standard & Poor’s cut Paramount Global‘s credit rating for senior unsecured debt to a “BB+,” down from a “BBB-.” Talk about “poor.” Paramount’s credit rating, which will carry through 2025, is now in what the agency considers “junk” status. (S&P Global considers any rating lower than “BBB” to be junk grade and a “high risk.”)

Even with the downgrade to its borrowing power, Paramount Global’s stock (PARA) grew on Wednesday.

In its Wednesday report (obtained by IndieWire), S&P Global cited “the ongoing deterioration of the linear television ecosystem and the elevated investments for its direct-to-consumer (DTC) streaming model” as its reason for the downgrade. Specifically, Paramount’s FOFC/debt (free operating cash flow vs. debt) rate is “well below” 10 percent. S&P Global expects Paramount to stay there — for a while, at least.

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How “well below” the threshold is it? Paramount’s FOCF-to-debt ratio at the end of 2023 was just two percent; S&P Global anticipates it can grow to four percent in 2024 and to six or seven percent in 2025. It’s still not gonna cut it, but the credit agency feels it’s a “stable outlook.”

“Paramount will need to execute its plan to substantially improve streaming losses over the next two years to mitigate further downside ratings pressure,” S&P Global wrote in its analysis.

Paramount had no comment when reached. A source with knowledge of the company’s thinking told IndieWire the rating downgrade was expected after Paramount’s credit was put under review a few weeks ago. The new rating doesn’t impact Paramount’s ability to finance the company or result in any material change in Paramount’s financial position.

But it don’t help none either.

The source we spoke with says Paramount is confident in its liquidity position, debt profile, and plan toward delevering. And that’s not (fully) blowing smoke. S&P Global’s report notes the company’s “significant liquidity sources,” including a cash balance of $2.5 billion as of the end of 2023. Paramount also has no near-term debt maturities. Last quarter, Paramount managed to pay down $1 billion in debt. It also recently sold its stake in the Indian company Viacom18, which should bring in roughly $517 million once the transaction closes. And CEO Bob Bakish announced the cuts of 800 jobs back in February.

S&P Global says it could change its rating and see the upside for Paramount if linear TV stabilizes its declines (unlikely) or if Paramount+ becomes profitable way sooner than expected. Last quarter Paramount’s DTC division lost “only” $490 million; Paramount+ reported having 67.5 million subscribers. Management expects Paramount+ to be profitable in the U.S. in 2025.

Better be. S&P Global might downgrade its rating even further if Paramount+ doesn’t turn that profit or if the company’s cable channels start declining even more rapidly. Another work stoppage won’t help, nor will a sports mega-streamer cutting into Paramount’s territory. Paramount is due for a carriage-fee renegotiation with Charter/Spectrum soon — if you thought Disney’s was bad, look out.

The good news is CBS had the Super Bowl this year, and it’s an election year, which means political ads. That’s maybe the end of the good news.

The new S&P credit rating comes as Shari Redstone is fielding offers for her company National Amusements, Inc., which controls 77 percent of Paramount’s voting stock. She’s been in talks with David Ellison in a move that would allow Ellison to merge Paramount with his company Skydance. Paramount also got an $11 billion offer for just its film and TV studios (and not the linear networks or Paramount+) from Apollo Global Management, but Redstone, knowing the value is in the studio, has been reluctant to break up the company.