Warner Bros. Discovery Faces Credit Rating Downgrade to Junk Status
In a recent development, S&P Global Ratings has downgraded Warner Bros. Discovery’s credit rating to junk status due to the anticipated decline in the company’s linear TV business. This downgrade comes as a result of continued revenue and cash flow declines in its linear TV operations, which are expected to offset growth in the company’s streaming and studio segments. S&P now forecasts Warner Bros. Discovery’s adjusted EBITDA to remain around $9 billion for the next three years, leading to a debt-to-equity ratio of 4.3x by the end of 2025, significantly higher than the 3.5x leverage threshold for an investment-grade rating.
As a result of these projections, S&P has lowered Warner Bros. Discovery’s issuer credit rating to “BB+,” one step below its lowest investment-grade rating. This new rating could potentially make it more costly for the company to raise or refinance debt. While Moody’s and Fitch Ratings still maintain a rating on Warner Bros. Discovery one level above junk status, the S&P downgrade reflects concerns about the company’s ability to deleverage through asset sales.
Warner Bros. Discovery recently underwent a reorganization into two divisions, with one focused on streaming (including HBO) and production studios, and the other on the remaining cable TV portfolio. This restructuring, completed in Q1, aims to unlock shareholder value according to CEO David Zaslav. However, S&P warns that any potential separation of Warner Bros. Discovery into a growth company and a Global Linear Networks company would be a credit negative.
Despite challenges in the linear TV business, Warner Bros. Discovery has seen significant EBITDA growth in its direct-to-consumer streaming segment. EBITDA has increased from $103 million in 2023 to $677 million in 2024, with further growth expected to exceed $1.3 billion in 2025. However, profitability in the streaming business is projected to moderate in 2026 as the company balances EBITDA growth with investments in content, marketing, and international expansion.
Overall, Warner Bros. Discovery faces a challenging road ahead as it navigates the evolving media landscape and works to address its credit rating downgrade to junk status. The company’s strategic decisions in the coming years will be crucial in determining its long-term financial health and competitiveness in the industry.
