David Ellison, Warner Bros. He moved mountains and battled many of his critics in his quest to acquire Discovery. Now, the linking action is about to begin, as the migration is officially scheduled to end on October 6th.
The sprawling entity known as Skydance will carry a nearly unprecedented level of debt — some $80 billion — for a major media merger and acquisition transaction, and that leverage will weigh on nearly every decision the company makes over the next three years. By comparison, Discovery assumed $43 billion of AT&T’s debt when it acquired WarnerMedia from AT&T, leaving the new WBD with approximately $53 billion in gross debt as of June 2022.
Skydance has a narrow path until the end of 2029 to significantly reduce long-term debt on the company’s books. If Skydance fails to meet some very specific goals laid out in agreements with lenders to reduce overall leverage, software billionaire and father of Skydance CEO Larry Ellison will have to make up the difference from his personal fortune.
Analysts from the three major credit rating agencies (Moody’s Ratings, S&P Global Ratings and Fitch Solutions CreditSights) say the company is walking a difficult tightrope in having to manage a difficult post-deal integration process at a time when the entertainment landscape continues to evolve in unpredictable ways. Skydance is counting on a lot to go right for its parent units, from Paramount Pictures and Warner Bros. to HBO Max and Paramount+ to CNN and CBS; it also faces competitive pressure to invest heavily in content and advanced technology, especially for legacy Paramount and Warner Bros.’ aging infrastructure.
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Barring a box office miracle or an unexpected decline in streaming subscribers in the coming months, Skydance is expected to operate with negative cash flow through 2027; This will make it harder to be opportunistic in the market. It’s not an impossible feat. But focusing on priorities and, most importantly, new channels for profit will require tremendous discipline across the organization.
“They need to move as quickly as possible to reduce that leverage,” says Jawad Hussain, managing director at S&P Global Ratings. “Even though there won’t be any cash flow in 2027 [Skydance] If you do this fast enough, you’ll start making money in 2028 and can start paying off your debt. And then it might get better on 29. “This is the time frame in which they have to do it.”
The company has committed to achieving $6 billion in operational savings within three years. This process will be difficult for the organization because much of it will be due to staff cuts to overlapping operations and reallocation of resources.
“You don’t know exactly what you need to do until you own the asset,” says Hussain. “I would say by the end of the year after Q3, and when they report Q4 early next year, we expect to see a nice alignment of the strategy and the timelines around that.”
Robert Fishman, senior analyst at MoffettNathanson Research, also sees Skydance leaders working in a challenging environment balancing the need to grow its streaming engines (HBO Max and Paramount+) without starving the linear channels that make up the bulk of the company’s cash flow.
“The company will have to choose where to invest its streaming dollars,” Fishman says. “And they need to make sure that the cash flows they are turning to won’t hurt the company’s overall cash flows.”
The transaction, which saw smaller Paramount Skydance acquire larger WBD, was carried out through Byzantine financing structures and a consortium of debt partners that included Middle Eastern sovereign wealth funds.
The debt accumulated on the new company’s balance sheet led to intense scrutiny in business and geopolitical circles; but Skydance has consistently assured leaders and Wall Street that foreign entities will have no governance role or operational influence over the company.
The big short-term question for media industry analysts is how David Ellison and newly hired co-CEO Ynon Kreiz can make the merger math work. The Skydance deal brings together two media giants that are already struggling to generate consistent profits and cash flow given all the external pressures on the market, according to S&P Global’s Hussain and others.
“Paramount itself was generating some cash flow. Warner Bros. was generating some cash flow, but they both had problems,” says Hussain. “So this has been a big problem for a lot of legacy media companies. We’ve already seen this with the merger of Discovery and Warner Bros. [in 2022]. We saw this with the merger of Viacom and CBS [in 2019]. They tried this. So the question is: why will it be different this time?”
Jason Cuomo, senior vice president in Moody’s Ratings’ corporate finance group, believes it will take time for investors to truly gauge the company’s potential. In that sense, relying on Larry Ellison’s extraordinary resources is seen by many as the only way to get the deal done, given how much is at risk. Moody’s generally rates Skydance’s debt at Ba3, one notch below investment grade. This investment grade means that the company pays higher interest rates in most cases on credit facilities and short-term borrowings, which is a normal course of business for large businesses.
“It’s a huge company going through a multi-year restructuring process. That’s going to mean a lot of disruption and a lot of change at the highest levels,” Cuomo says.
“A significant boost to the credit profile is the controlling shareholder’s [the Ellison family] Commitment to support the company’s target leverage at the end of 2028 and 2029. If this commitment did not exist, our view on this credit profile and risk would be greater. It will effectively reconcile the divide between what the company hopes to achieve in two to three years and what its commitment is. They are determined to close this gap. “This is one of the current material risks.”
S&P Global and CreditSights give Skydance slightly higher scores, pushing them toward investment grade, which is necessary for a company shouldering so much debt. S&P Global and others calculate that Skydance will have a debt-to-earnings ratio of 7 in 2026 and 2027. The goal is to reduce this to 3 or less by 2029.
Hunter Martin, senior analyst for telecom, media and cable at CreditSights, said the Street will be watching the company’s financial performance closely. But he echoes Cuomo’s view that it will be impossible to tell after just a few quarters. Martin says he will be keeping a close eye on the short-term fate of linear channels. As these channels move forward, so does the company’s largest source of cash flow.
“There are two key things we can look at right now: What’s going on when it comes to the traditional TV networks businesses: CNN, TNT, TBS, Discovery channels, Nickelodeon, CBS. “They’re in steady decline, but they contribute about over 70% of profit and almost all of free cash flow,” says Martin. “They’re already cutting costs, so we want to see how that evolves because that’s the big profit driver and big cash generator of the combined industry. work.”
Martin adds that despite the turmoil of the deal-making process, both Paramount and Warner Bros. reached the deal with operational success stories.
“Both of these businesses have shown pretty good momentum in recent quarters,” Martin says. “So what we want to see there is [is] “If they can maintain or build on that momentum after merging.”
Hussain said Paramount will monitor how it meets the company’s tech stack needs by combining HBO Max and its Pluto TV FAST channel service. Legacy studios have all struggled to deliver great digital user experiences like Netflix has. Skydance has a chance to survive if it can catch up with Netflix and Disney+ in terms of algorithm and design. Given the Ellison family’s roots in technology (Larry Ellison is co-founder of Oracle), the resources may be available to accelerate the inevitable combination of the company’s streaming platforms into a single vertical powered by the same technology engines.
“Legacy media companies were always at a disadvantage because they didn’t have the technological infrastructure to understand the technology side,” says Hussain. “Content is very important, of course. But your ability to distribute and have a good platform is also important. Netflix has shown that. With YouTube and others, you see how important the platforms themselves are in making the customer experience better. So now you’re bringing in someone with a much more tech background.”
MoffettNathanson’s Fishman says the company’s content spending priorities in the first year will also be decisive. The first striking news announcement after Skydance acquired Paramount in August 2025 was a seven-year UFC rights commitment with an eye-popping $7.7 billion price tag.
“One of the big things we’re watching is the direction of combined content spend going forward and where they’re going to look to get efficiencies,” Fishman says. “Given recent history, it is unclear whether sports will receive an increasing share of this. [NFL rights] negotiations and where the flow takes place [Skydance’s] they reallocate the overall budget by shifting resources away from linear.”
Martin notes that Skydance’s increased speed in the approval process — antitrust lawsuits filed by 12 states — likely cost $500 million in higher interest fees on short-term debt as rates slowly rose.
“They won’t have the extra cash flow to pay off debt [in 2027] because it will take some time for all these synergies to be realized,” says Martin. “There is a lot of cost to achieve these synergies, which were predominant. You have to make layoffs and pay people [severance fees]“If you need to make technological investments to move to a new platform, you may have to exit old real estate leases to move everyone to one center. These are initially headwinds.
Martin and other analysts emphasize that Skydance must balance a series of spinning plates in real time against tough deadlines backed by hard numbers.
“The market basically knows that they need to deliver that cost synergy. They also need to increase profits to reduce the debt burden and improve credit metrics,” he says.