Can Skydance Handle Its Debt If Rates Rise?
A bankruptcy in the near term is not what the credit agencies forecast, but the margin for error is thin and higher rates would make it thinner. Skydance (formerly Paramount Skydance) closed its Warner Bros.
- Discovery purchase on October 6 and now carries roughly $80 billion of debt, with S&P forecasting leverage of about 7.6 times in 2026 and 2027 and 5.1 times in 2028.
- Its ratings are BB at S&P and Ba3 at Moody's, which are speculative grade but not distressed, and a large equity cheque from the Ellison family, RedBird and sovereign funds sits beneath the lenders.
- The risk is a squeeze in 2028 to 2029 if synergies miss, free cash flow stays thin and refinancing costs jump.
This is educational analysis, not investment advice.
How much debt does Skydance have after the Warner Bros. deal?
S&P's forecast leverage for 2026 and 2027. Debt is about 7.6 times earnings before improving to 5.1 times in 2028, according to S&P. The Ellison family has pledged 3.75 times by 2028 and 3.0 times by 2029.
| Item | Figure | Source and note |
|---|---|---|
| Deal | $31.00 a share in cash for Warner Bros. Discovery; equity value $80.9 billion at signing | Paramount Skydance's 10-Q; the deal was reported closed on October 6, 2026 |
| Debt after closing | About $80 billion; other reports give $86.8 billion total ($78.9 billion net) and $89.3 billion gross | Variety; Debtwire summary of the company's investor presentation. Figures differ by date and definition |
| Debt before the deal | About $15.2 billion at June 30, 2026 | 10-Q, carrying value |
| Debt taken on from Warner Bros. Discovery | $17.7 billion of senior notes and $15.0 billion of bridge borrowings at March 31, 2026 | 10-Q |
| Debt financing commitments | $54 billion, including a $49 billion 364-day bridge loan to be replaced by longer-term debt | 10-Q; a tender-offer filing cites $67.2 billion, which this post could not reconcile |
| Equity from the Ellison family and RedBird | $40.7 billion to $46.7 billion committed, depending on the filing | Tender-offer amendment and 10-Q; sovereign funds from the Gulf also invested through a syndication |
The company is renamed Skydance after the merger and the ticker in the S&P 500 list this site checks is SKYD, while earlier filings use PSKY. This site does not yet track it in its stock data, so the figures here come from filings and press reports, not from the weekly data.
What do the credit rating agencies say?
| Agency | Rating | What it means |
|---|---|---|
| S&P (September 24, 2026) | BB, stable outlook, cut from BB+ | Two notches below investment grade; the proposed term loan B is rated BBB- |
| Moody's (September 29 note, per Variety) | Ba3 overall | Three notches below investment grade; Moody's expects leverage in the mid to high 7 times range at closing, like very low single-B issuers |
| Fitch | BB+ with a negative watch, with a later cut reported | One notch below investment grade at the first cut; details of the later cut were not confirmed |
S&P's leverage forecast against the Ellison family's pledges. The pledges are what S&P leaned on for its BB rating.
All three agencies put it below investment grade, which most investors call junk, but a BB with a stable outlook is not a distressed rating. S&P says it would cut again if leverage stays above 5 times or free cash flow trends toward break-even in 2028, and an upgrade is unlikely until leverage heads below 4.25 times. For reference, how to tell if a company might go bankrupt explains the tests and the Altman Z-Score method is the screen this site uses.
How big is the interest bill?
| Item | Figure | Note |
|---|---|---|
| Interest expense, first half of 2026 | $493 million, with $255 million in Q2 | Before the deal closed; about $1 billion a year |
| Extra interest from the deal | More than $3 billion a year | Moody's estimate |
| Rough total | About $4 billion a year | Our arithmetic from the two lines above, not a company figure |
| Free cash flow forecast | Minimal in 2026, more than $4 billion in 2027 | S&P forecast; 3.4% of debt in 2027 |
| Riskiest new debt | A yield of nearly 9% | Reported by Axios via search coverage; one source |
The point is that in 2027 the company is forecast to generate about as much free cash flow as its interest bill, so there is little left over for paying down debt until synergies and cost cuts come through. Debtwire's credit report on the company carries the headline that synergies alone will not hit the leverage targets, which is why asset sales and earnings growth also matter.
What happens to Skydance if interest rates go higher?
The filings read for this post did not give the share of Skydance's debt that floats, so the table below is an illustration, not a forecast. Bank term loans and revolvers normally float with short-term rates, and bonds are usually fixed until they are refinanced. The 10-Q lists $5 billion of new term loans and a $5 billion revolver, and Warner Bros. Discovery took on a $13 billion seven-year term loan in June.
| Floating-rate debt | Extra interest if rates rise 1 point | Share of 2027 free cash flow (about $4 billion) |
|---|---|---|
| $10 billion | $100 million | 2.5% |
| $20 billion | $200 million | 5% |
| $30 billion | $300 million | 7.5% |
The bigger exposure is refinancing: the 364-day bridge loan had to be replaced with longer-term debt, and any bond sold or loan repriced at a higher yield raises the permanent interest cost. The market backdrop is not friendly. The 10-year Treasury yield is about 4.96% on this site's data (it peaked at 5.28% on October 7), CPI inflation is 4.0%, the Fed raised rates in September and futures show about an 80% chance of another hike in December. Will the midterms rally or crash the stock market? covers that backdrop.
Is bankruptcy a real risk for Skydance?
| What protects it | What threatens it |
|---|---|
| A large equity cheque, $40.7 billion to $46.7 billion, sits beneath the lenders | Leverage of about 7.6 times is high for a media company whose cable business is shrinking |
| S&P rates it BB with a stable outlook, not CCC | Free cash flow is minimal in 2026, so there is no cushion early on |
| Free cash flow is forecast above $4 billion in 2027 and rising after that | More than $3 billion of new annual interest stays until debt is paid down |
| The Ellison family pledged leverage of 3.75 times by 2028 and 3.0 times by 2029 | Hitting the pledge depends on synergies, asset sales and earnings growth, and analysts doubt synergies alone will do it |
| Warner Bros. Discovery and Paramount assets add scale in studios and streaming | Streaming competition and higher refinancing costs both pressure margins |
The agencies' forecasts do not include a default: they include thin cash flow, a long deleveraging road and a rating that can slip if things go wrong. The more likely stress outcomes are a further downgrade, asset sales, a dividend or buyback squeeze and dilution for shareholders, not an outright bankruptcy in the next two years. That judgement could change quickly if free cash flow disappoints in 2027 or rates jump. Separately, Paramount paid Netflix's $2.8 billion termination fee on Warner Bros. Discovery's behalf in the first quarter, to be reimbursed by the Ellison parties (see is Netflix a buy at $63?).
What should you watch next?
The dot starts at today's 7.6 times and travels to the Ellison pledge of 3.0 times. S&P's triggers are 5 times (downgrade) and 4.25 times (upgrade).
| Watch | What it would show |
|---|---|
| Third-quarter results (check the company's investor page for the date) | Free cash flow and early synergy progress |
| The December Fed meeting and the 10-year yield | Whether refinancing gets more expensive |
| Bond issues that replace the bridge loan | The yield the company really pays |
| Rating actions from S&P (5 times down, 4.25 times up), Moody's and Fitch | Whether the agencies still believe the deleveraging plan |
| Asset sales and cost cuts at Warner Bros. Discovery | How much debt falls without waiting for earnings |
Sources
- Investing.com: S&P downgrades Paramount Skydance rating on higher leverage (September 24, 2026): S&P rating, leverage forecast, triggers
- Paramount Skydance 10-Q for the quarter ended June 30, 2026 (SEC): pre-deal debt, interest expense, deal terms and financing commitments
- Variety: Skydance's high-wire act begins (2026): debt level and ratings (read via search summary)
- Axios: Paramount closes $110 billion deal for Warner Bros. Discovery (October 6, 2026): closing and new debt yield (read via search summary)
- Crash Indicator on this site: 10-year yield and macro backdrop, October 22 to 23, 2026
Several sources were behind paywalls or blocked, so the Variety, Axios, Moody's and Fitch details come from search summaries and the S&P figures from one article. The post-closing debt total, the share of floating-rate debt, the maturity schedule, the coupon on the new bonds and Moody's outlook were not found, and the rate-sensitivity table is an illustration. Figures differ by source and date. This is educational content, not investment advice.
Skydance debt FAQ
Is Skydance at risk of bankruptcy?
Not in the near term according to the credit agencies' forecasts: S&P rates it BB with a stable outlook and forecasts more than $4 billion of free cash flow in 2027. The margin for error is thin, though, with leverage near 7.6 times.
How much debt does Skydance have?
Roughly $80 billion after closing the Warner Bros. Discovery deal on October 6, 2026, with other reports giving $86.8 billion to $89.3 billion depending on the definition.
What is Skydance's credit rating?
BB with a stable outlook at S&P and Ba3 at Moody's, both speculative grade, and BB+ on negative watch at Fitch with a later cut reported.
What happens if interest rates rise?
The floating-rate part of the debt gets more expensive straight away, and every refinancing costs more. As an illustration, each 1 point on $20 billion of floating debt adds $200 million a year, about 5% of forecast 2027 free cash flow.
What is Skydance's debt target?
The Ellison family has pledged to bring net leverage to 3.75 times by 2028 and 3.0 times by 2029, from about 7.6 times in 2026 and 2027.