Paramount launches a $7.5 billion loan for Warner Bros., the first piece of about $52 billion in new debt

Paramount Skydance on Thursday began marketing a $7.5 billion senior secured term loan to help pay for its acquisition of Warner Bros. Discovery, Reuters reported. The company also intends to raise about $44.4 billion of additional secured debt, and said it would use the money, together with cash and equity already raised, to fund the purchase and repay some existing debt.

The launch comes days after Paramount settled litigation with a California-led group of states and the Writers Guild of America over the $110 billion deal, which Reuters said cleared the last domestic hurdles. We covered that settlement in our earlier story. Paramount shares were up 2.4% at $10.20 shortly before 11 a.m., according to Nasdaq.

The number behind the number

The $7.5 billion loan is the headline, but it is the small end of the package. Add the $44.4 billion Reuters says is coming and Paramount is looking to borrow about $52 billion. Paramount's own quarterly filing for the period ended June 30 explains where that figure comes from: the company had secured $54 billion of committed debt financing for the deal, made up of a $49 billion, 364-day senior secured bridge loan and $5 billion of term A loans. The new loan and bond sales are the long-term debt meant to take the place of that temporary bridge.

The same filing shows how much the balance sheet changes:

Going from about $15 billion to about $80 billion means more than five times the debt. Paramount's interest bill was $255 million last quarter, about $1 billion a year at that pace. At an average of 7%, a round figure used only to show scale, $52 billion of new borrowing would add about $3.6 billion a year in interest.

Why the timing matters

Paramount is selling this debt into a rising-rate market. The 10-year Treasury closed Wednesday at 5.11% on Treasury's own curve, and Fed officials including Philadelphia's Anna Paulson said on Thursday that further hikes may be needed. Secured term loans of this kind usually float over a short-term benchmark, so the rate on the $7.5 billion moves with the Fed: every quarter-point increase adds about $19 million a year to its cost.

For bond and loan investors, a sale this size is a test of demand. The 5-year Treasury auction on Wednesday drew the weakest bidding since 2018, as we reported. How much yield Paramount has to pay, and how large the order book gets, will show whether corporate buyers are more willing than Treasury buyers to take on new debt at these levels.

What traders watch next

The pricing of the term loan, and the size and yields of the bond tranches when they launch. Follow the stock on our stocks page.

Sources: Reuters, Paramount Skydance Form 10-Q, Nasdaq, U.S. Treasury. This is market information, not investment advice.