Warner Bros. Discovery’s Credit Rating Cut to Junk Status by S&P, Citing Weak Linear TV Outlook

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Due to the projected ongoing decline of Warner Bros. Discovery’s traditional TV operations, S&P Global Ratings has downgraded the company’s credit standing to a non-investment grade, or “junk” status.

On Tuesday, S&P revised down its predictions for Warner Bros. Discovery’s earnings in 2025 and 2026. The main reason for this revision is the persistent decrease in revenue and cash flow from the company’s linear TV operations, which will counteract growth in their streaming and studio sectors. S&P now anticipates that Warner Bros. Discovery’s adjusted EBITDA will stay roughly at $9 billion over the next three years. This forecast leads S&P to expect that the company’s debt-to-equity ratio will be 4.3 times by the end of 2025, which is well beyond their 3.5x leverage threshold for an investment-grade rating, and that the company’s debt-to-equity ratio will stay above 3.5x until 2027.

Consequently, Standard & Poor’s has downgraded Warner Bros. Discovery’s credit rating to “BB+,” which is just below its lowest investment-grade level. S&P describes “BB+” as the “highest speculative grade among market participants.” The reduced rating for WBD could lead to higher costs for the company when seeking or restructuring debt. Meanwhile, Moody’s and Fitch Ratings have assigned a rating to Warner Bros. Discovery that is one level above junk status.

According to S&P’s rating downgrade advice, it is unlikely that WBD will significantly speed up debt reduction by selling assets. Instead, they are expected to focus on investing in their expanding ventures, thereby prolonging the process of debt reduction.

Warner Bros. Discovery declined to comment.

By the close of the first quarter in 2025, Warner Bros. Discovery reported a total debt of $38 billion, following repayments of approximately $2.2 billion during that period. The company stated that their “net leverage” at Q1’s end was 3.8 times; this ratio is calculated as net debt over the sum of the latest four quarters’ adjusted EBITDA, which amounted to $9.035 billion in this case.

Warner Bros. Discovery has restructured the company into two main sectors: one encompassing its streaming service (including HBO) and film production units, while the other includes the remaining cable TV properties. This reorganization, finalized in Q1, aims to open up possibilities as we assess various strategies to maximize shareholder value, as stated by CEO David Zaslav upon initially announcing the division last December.

According to S&P, they haven’t taken into account a possible split between WBD in their current evaluation. However, if WBD were to divide into a streaming and studio-focused company, and a global linear networks company, this division would result in a lower credit rating for the companies involved.

Based on their latest predictions, S&P Global Ratings anticipates a significant drop in Warner Bros. Discovery’s global networks’ earnings before interest, taxes, depreciation, and amortization (EBITDA) by about 20% in 2025, reaching $6.5 billion. This anticipated decline is primarily due to faster revenue losses and increased expenses from newly acquired sports rights content, along with the final year of NBA rights in 2025. Additionally, the firm predicts a decrease of 11% in WBD’s linear TV advertising for this year, attributed to ongoing pressure on ratings and reduced sports programming compared to competitors.

To put it simply, the streaming segment of Warner Bros. Discovery has experienced significant EBITDA growth, rising from $103 million in 2023 to an impressive $677 million in 2024. Experts at S&P predict this growth will continue, reaching over $1.3 billion by 2025. However, the company anticipates a slowdown in profitability in 2026 as it aims to strike a balance between further EBITDA growth and investing in content, marketing, and expansion into new markets like the U.K.

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2025-05-20 23:18