Paramount seeks $44.4bn in bonds for Warner Bros. Discovery deal as judge weighs approval

Paramount is asking bond investors for $44.4 billion to buy Warner Bros. Discovery, while warning that no one knows when the deal will close.

The company began marketing the debt offering and said in a filing with the US Securities and Exchange Commission that the merger will only be completed once its closing conditions are met or waived, according to Deadline. It set 7 October as a marker date for the bond sale. The actual closing date is uncertain.

One approval remains. The last closing condition is sign-off by US District Judge Araceli Martinez-Olguin of a proposed settlement of an antitrust lawsuit brought by 12 state attorneys general led by California’s Rob Bonta. The judge declined to approve that settlement at a hearing on 24 September and allowed time for opposition briefs.

The borrowing is large. The buyer is smaller than its target.

The $44.4 billion offering includes about $32 billion in investment-grade debt in dollars and euros, meaning bonds aimed at cautious investors, and the equivalent of $12.4 billion in high-yield bonds, meaning higher-risk debt that pays higher interest. Paramount said it will use the proceeds, plus cash on hand, term loan borrowings and equity financing, to pay for Warner Bros. Discovery.

Total debt financing for the deal is $51.9 billion. That includes a $7.5 billion seven-year Term B loan, a type of bank loan sold on to institutional investors, whose syndication was announced last week, according to Reuters. Paramount also has a $49 billion bridge loan, meaning standby funding it can use if permanent financing is not in place by closing.

Assuming a 6 October close, Paramount calculated total cash payable to Warner Bros. Discovery common stockholders at $78 billion. That includes a $31-per-share payout, a ticking fee starting 1 October, meaning an extra amount that grows the longer closing takes, and about $1.1 billion for vested Warner Bros. Discovery equity awards.

The scale shows in the balance sheets. Paramount unveiled the planned acquisition in February at about $80 billion in equity value and around $110 billion in enterprise value, meaning equity plus debt minus cash. Warner Bros. Discovery had about $34 billion in debt and $3.4 billion in cash as of June. Paramount Skydance has a market capitalisation of $11.5 billion, against $77.4 billion for Warner Bros. Discovery.

The merged company would carry more than $80 billion in long-term debt, with annual interest well above $6 billion. Chief executive David Ellison has targeted $6 billion in synergies, meaning cost savings and efficiencies across the combined company.

Equity funding includes up to $46.7 billion plus ticking fees from the Lawrence J. Ellison Revocable Trust and $250 million from RedBird Capital. The trust and RedBird have assigned subscription rights to outside parties including the sovereign wealth funds of Saudi Arabia, Abu Dhabi and Qatar and US investment bank LionTree. Those outside investors will each receive newly issued non-voting Paramount Class B shares at close. The Ellison Trust has committed to backstop the equity financing, meaning it will cover any shortfall.