Paramount Skydance Warner Bros. Takeover|$110 Billion Prize at 10% Bond Yields?

Approved, yet marked down

A federal judge cleared the final hurdle for Paramount Skydance's $110 billion takeover of Warner Bros. Discovery. The next day, Paramount's stock fell almost 10 percent, and some of its brand-new bonds slid until they yielded over 10 percent. A court win usually reads as relief. Here, shareholders and lenders both marked the buyer down. Paramount's shares closed that day at $9.34.

The bonds that slid belong to one of the biggest buyout debt packages ever assembled. It totals about $52 billion of new borrowing. It lands on a company expected to carry about $80 billion of debt once the deal closes. That debt was supposed to be sold months earlier. Lawsuits held the deal up, including one from 12 states led by California's attorney general.

While it waited, Paramount had agreed to absorb any rise in interest rates. Rates rose fast. A powerful sell-off in long-dated Treasurys pushed benchmark yields to their highest levels since 2002. Borrowing now instead of three months earlier will cost Paramount hundreds of millions of dollars a year in extra interest. Reporting on the sale tied that to growing fears about global inflation. Look at a single bond.

Paramount sold $5.25 billion of ten-year investment-grade notes. The ten-year Treasury yield hit 5.3 percent that day. Against that benchmark, the new notes priced at roughly 7.9 percent. That is above the roughly 7.5 percent rate on a new thirty-year mortgage. Three of the investment-grade notes yield more than 8 percent. Bloomberg data show just two US investment-grade notes issued this year with yields like that.

The longest-dated note, maturing in 2066, will pay almost 9 percent. The deal itself appeared to be one factor pushing long-dated yields higher on the day it priced. Tom di Galoma of Mischler Financial Group said "the Paramount deal is definitely front and center."

Lenders change their minds

On paper, lenders were eager. Bloomberg reported orders of more than $109 billion for the $30 billion of investment-grade bonds. That is more than three and a half times the amount on offer. Then trading began. In corporate bonds, hot deals are rationed, so buyers often ask for two or three times what they want. The real numbers arrive the next morning, when the new owners start selling to each other.

On that first morning, some of Paramount's big new debt deals dropped in price. Their yields pushed past 10 percent. A second group of lenders took a hit as well: people who already owned Paramount bonds. The new debt is secured, and it ranks ahead of Paramount's existing public senior debt. In bond-market terms, the old debt is being primed.

As a result, it carries junk-grade ratings: B2 from Moody's and B-plus from S&P. Holders of the new secured notes get a priority claim on pledged assets over unsecured creditors in a default. Paramount's 6.875 percent bonds due 2036 show the result. They traded around 84, meaning about 84 cents for each dollar of face value. That is a discount of about 16 percent. At that price, they yielded 9.25 percent.

That is about one percentage point above the average in the junk-bond market. The bonds were already trading there before the new notes priced. That same day, Paramount's stock actually rose 3.4 percent, to $10.33.

Who carries the weight

Put the pieces together. The combined company is expected to carry about $80 billion of debt. 24/7 Wall St. sets that against roughly $3.8 billion of EBITDA, a measure of operating earnings. By its count, leverage would be 7.6 times through 2027. The Warner side looks calm. Warner shares closed at $30.90, just below the $31-a-share cash offer, a sign investors expect the deal to close.

Paramount's stock, by contrast, was down about a quarter for the year. 24/7 Wall St. called that split a story about who is bearing the real risk. Warner holders are being paid in cash. Paramount's owners keep the combined company and its debt. The equity behind the deal has its own shape. David Ellison's father, Larry Ellison, personally committed to backstop over $40 billion in equity financing.

That commitment helped get Warner to agree to sell. Three Middle Eastern sovereign wealth funds led by Saudi Arabia then agreed to invest, defraying his costs. Deadline reported they will end up with a combined stake of just under 50 percent in the combined company. The court win came with conditions. To end the states' lawsuit, Paramount accepted a five-year consent decree.

The combined company must release at least 30 films a year in US theaters. Each film it falls short costs $30 million. If it fails to cure a shortfall, it must sell its stake in Miramax. It must spend an extra $300 million a year on US production. It must negotiate cable deals for Warner and Paramount channels separately. It cannot sell or close its Melrose Avenue campus or the Warner Bros. lot in Burbank.

A separate deal with the Writers Guild bars writer layoffs at CBS News Broadcast for five years. Judge Araceli Martínez-Olguín called the decree a "fair, reasonable, and good faith approach to address the competitive harms." She wrote that it "saves the risk, time, and expense of litigating through trial." Opponents read the same document differently.

The Block the Merger coalition told the court that "neither time nor circumstance changes the fact that this merger lessens competition." Neither statement mentions what time had already cost. Without a settlement, the states' case was headed toward a trial in March 2027. And every month of waiting was paid for in higher rates, under Paramount's promise to absorb them.

The cost-cutter's record

Minutes after the ruling, David Ellison named a co-CEO. Ellison had been Paramount's sole chief executive since its merger with Skydance. His pick was Ynon Kreiz, chief executive of Mattel, the maker of Barbie. Ellison keeps long-term strategy, creative vision and capital allocation. Kreiz takes day-to-day management and the integration of the two businesses.

Reuters read the choice as a signal that the company will care most about running lean. Kreiz inherits the task of delivering the $6 billion in cost savings promised from the merger. At Mattel, he executed more than $1.5 billion in savings through thousands of job cuts. That helped Mattel top $1 billion in annual adjusted EBITDA in 2021.

Ellison said that in Kreiz he was adding a partner with "the operating firepower this integration demands." The Mattel record did not stay strong. Reuters reported the company could not keep up those rates in later years, hit by the pandemic, an inflation-led slowdown and tariffs. Its stock slipped 2 percent over his tenure. Morningstar analyst Jaime Katz was blunter.

She wrote that "Kreiz's strategy to establish Mattel as an IP-driven, high-performing toy company has largely fallen flat." Ellison has tried a version of this setup before. Deadline noted the role sounds a lot like the job Jeff Shell thought he was doing for Ellison. Shell flamed out in the spring of 2026. Paramount is paying heavily for the bet. Kreiz's first-year package totals more than $46.5 million.

That includes a one-time signing award of restricted stock valued at $31.5 million. At Mattel, his total compensation for 2025 was $15.1 million. The new package is about three times that. Most of his stock awards vest quarterly over three years, as long as he stays with the company.

Cut what, keep whom

A cost-cutter's arrival suggests a sweep of the old guard. Ellison's first big personnel moves went the other way. According to the Wall Street Journal, he picked HBO content chief Casey Bloys to run streaming for the combined company. Cindy Holland, whom Ellison had put in charge of Paramount's own streaming services, is leaving. In a memo to staff, she wrote that "David is optimizing for HBO stability."

People familiar with the matter told the Journal that Ellison worried losing Bloys would damage the HBO brand. That brand is a crucial part of the company's streaming strategy. The same instinct reached CNN. The Journal reported that Ellison asked CNN chief executive Mark Thompson to stay after the deal closes. The two have discussed a new contract but have not reached terms.

A Paramount representative declined to comment to the Los Angeles Times. So the plan holds two commitments at once. The leaders of the most valuable brands are being kept. And $6 billion in promised savings still has to be found, under a decree that sets film counts and protects studio lots. The deal is expected to close on October 6, with Kreiz starting the day before. The tension of that first day now reads plainly.

The court removed the legal risk. Lenders then put a price on the financial one. One public number tracks that judgment. Paramount's 6.875 percent bonds due 2036 can be followed on FINRA's TRACE service. If their price climbs back from around 84, lenders are asking less to carry Paramount's risk, and the integration plan is gaining credit.

If the price keeps falling, lenders are asking more to hold Paramount's debt while the $6 billion in savings is still only a promise.

Informational only, not investment advice. Figures and quotes come from the linked reports.