Bonds issued by Paramount Global Inc. have seen significant spread tightening – and higher prices – on strong volume in recent weeks, amid reports that chairman Shari Redstone is in talks to sell a controlling stake in the company.
Holders of the bonds could stand to pay out big if there is a change of control and a credit rating downgrade, thanks to a special provision in their terms.
The reports emerged last week when Deadline reported that media and entertainment group Skydance – run by David Ellison, son of Oracle Corp. ORCL,
Founder Larry Ellison – and RedBird Capital were busy with National Amusements and Paramount PARA,
National Amusements is the Norwood, Massachusetts-based exhibitor that owns 77% of Paramount’s Class A shares.
On Sunday, Puck and the New York Times said the talks had been going on for weeks. Skydance is one of Hollywood’s top independent studios, having produced Paramount blockbusters such as ‘Mission: Impossible – Dead Reckoning’ and ‘Top Gun: Maverick’. RedBird is a financier of Skydance.
A sale would mark a major turnaround for Redstone, the daughter of late Paramount CEO Sumner Redstone, who waged a bitter battle for control of the company in 2016 and who later led the effort to buy CBS Corp. and Viacom, creating what is now Paramount Global.
A deal could mark the start of a major shakeup in the media industry as traditional TV companies struggle to make money in the streaming age. Comcast Corp. CMCSA,
which owns NBCUniversal, could expand, while Warner Bros. Discovery WBD,
could be a potential seller. Disney DIS,
CEO Bob Iger recently floated the idea of selling ABC, but quickly abandoned it.
Spreads on Paramount bonds have tightened over the past two weeks, as shown in the following chart from data solutions provider BondCliQ Media Services.
Paramount’s bond spreads trading among peers including Charter Communications Inc. CHTR,
Netflix Inc. NFLX,
T-Mobile US Inc. TMS
and Warner Bros, according to Bloomberg Intelligence. That despite the fact that the company has sufficient liquidity, it has passed the stage of peak investment in streaming and forecasts growth in Ebitda, or earnings before interest, taxes, depreciation and amortization, for 2024. Ebitda is often seen as a measure of a company’s ability to cover interest payments.
Two-week spread performance for select Paramount global bonds.
BondCliQ media services
Bond prices have risen, but remain below par. That’s because the recent rise in interest rates has sent prices down due to the inverse relationship between the two, and not because of credit quality issues.
The bonds contain a change of control provision that requires the company to offer to buy them back at 101 cents on the dollar if there is a change of control at the company and its credit rating is downgraded. The bonds are currently rated Baa3/BBB-/BBB.
Two-week price development of selected Paramount Global bonds.
BondCliQ media services
Bonds have been purchased net over the past two weeks, a trend that continued on Tuesday.
Most active Paramount Global net customer flow issues (last 10 days).
BondCliQ media services
Buying peaked on Tuesday but has moderated so far on Wednesday.
Paramount Global bonds net customer flow (intraday).
BondCliQ media services
Paramount has approximately $16 billion in outstanding bonds with maturities through 2062.
Outstanding Paramount Global Debt (USD) by Maturity Year.
BondCliQ media services
Paramount stock has struggled this year, falling 11%, underperforming the S&P 500 SPX,
which won 21%. The stock is up 25% in the past month.
Research firm Lightshed Partners, which specializes in technology, media and telecom companies, said Paramount faces a bleak future as it sees no obvious strategic buyer who would take over the entire company.
That assumes a transaction could receive regulatory approval, which is not guaranteed in the current regulatory environment, not to mention what could happen if there is a change in management, analysts Richard Greenfield, Brandon Ross and Mark Kelley wrote on Tuesday in comment.
“While a strategic combination with one of Paramount’s peers would yield significant synergies, any traditional media company that acquires more broadcast/cable network assets will suffer (especially if they acquire the declining assets using leverage),” they wrote.
Lightshed is skeptical that any tech platform would want to have broadcast and cable network assets, though the studio could potentially pursue one or more buyers.
“However, we would think that the first step in such a scenario would be to shut down Paramount+ and become an arms dealer,” the analysts said. “This would help tap the studio’s free cash flow, decongest the studio’s assets and create a more viable business.
“It seems strange to sell now when the studio is making virtually no money and Paramount+ is losing $1.7 billion,” she added.