Skydance Bonds Slide as Investors Question Warner Bros. Acquisition

Skydance Corp.’s bonds weakened further, while the cost of protecting its debt against default increased, as investors questioned the profitability of the company following its $110 billion acquisition of Warner Bros. Discovery Inc., Bloomberg News reporter Zahra Tayeb reported.

Skydance’s debt came under pressure after the company completed its $110 billion acquisition of Warner Bros. Discovery. [Photo: Laura Alier, Wikimedia Commons]

Skydance’s 9.125% high-yield bonds due in 2036 fell about 2.5 cents on the dollar to 91 cents, according to Trade Reporting and Compliance Engine (TRACE) data cited in the report.

The bonds were originally sold at par, or 100 cents on the dollar, on September 30.

The company’s debt has broadly declined since it issued bonds in late September to help finance the acquisition.

Skydance’s newly issued investment-grade debt also underperformed the broader corporate bond market.

A JPMorgan Chase & Co. note on Tuesday said the performance of recent issues relative to the bank’s investment-grade corporate bond index over a 10-day period showed the weakest relative performance since the height of the COVID-19 pandemic.

The risk premium on Skydance’s investment-grade bonds carrying a 7.55% coupon and maturing in 2033 rose to 2.95 percentage points on Tuesday, from 2.87 percentage points on Friday.

The bonds were initially issued at a spread of 2.375 percentage points over comparable benchmark securities.

In the derivatives market, the cost of buying five-year protection against a Skydance debt default rose to 5.728 percentage points, from 5.132 percentage points on Friday.

Skydance completed its acquisition of Warner Bros. Discovery on October 6, creating a major media company with film studios, television networks and streaming services.

The transaction ranks among the largest media acquisitions in the industry.

The size of the deal and the debt used to finance it have prompted questions about whether the combined business can generate sufficient earnings and cash flow to justify its cost.

Skepticism about the transaction’s value adds to the pressure on the company’s bonds.