Paramount Global Debt Rating Downgraded to Junk by S&P Global

Paramount Global‘s debt rating was cut to junk status by credit-rating agency S&P Global, which cited the media conglomerate’s ongoing challenges with free cash flow generation relative to its debt.

S&P on Wednesday said it expects Paramount Global’s free operating cash flow-to-debt will remain “well below” 10% through 2025, and that adjusted leverage (debt-to-equity ratio) will stay above 3.5 times through then. The agency cited “the ongoing deterioration of the linear television ecosystem and the elevated investments for its direct-to-consumer (DTC) streaming model” for the downgrade.

“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 said in its ratings adjustment. Paramount Global’s long-term debt was $14.6 billion as of the end of 2023.

As part of its ratings update, S&P issued a “stable outlook” for Paramount Global, which “reflects our expectation that leverage will decline to around 4.0X in 2024 with FOCF/debt improving to about 5% as losses in the streaming segment materially decline.” That is “largely based on our assumption that streaming losses will improve by more than $700 million due to strong average revenue per user (ARPU) growth from price increases enacted in mid-2023 and ongoing, albeit more modest, subscriber growth.”

S&P on Feb. 23 placed Paramount Global on “credit watch negative.” Previously the firm had a “BBB-” rating on the company, its lowest investment-grade rating. With the change Wednesday, S&P now has a issuer credit rating on Paramount Global and its senior unsecured debt of of “BB+,” which is the “highest speculative-grade by market participants.” At the same time, 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.”