Paramount Global‘s credit rating has been lowered to junk status by S&P Global, which cited the toll of ongoing pay-TV declines as a key factor in its downgrade.
The credit ratings agency lowered Paramount’s rating to BB+ from BBB-. S&P cited the “degradation of credit metrics from the accelerating declines in linear media and the shift toward a more competitive and less certain streaming model.”
The firm had warned a month ago that a downgrade would be possible due to adjustments it was making across its ratings evaluations.
While the company’s debt levels are decreasing, S&P acknowledged, its ratio of free operating cash flow to debt will come in well below its 10% threshold, “even as streaming losses significantly abate over the next two years. … Paramount will need to execute its plan to substantially improve streaming losses over the next two years to mitigate further downside ratings pressure.”
The news comes as speculation continues to swirl about the future of Paramount. Its controlling shareholder, Shari Redstone’s National Amusements, has fielded multiple offers and expressions of interest in some or all of the company.
One positive, the agency’s report noted, is its assumption that “streaming losses will improve by more than $700 million due to strong average revenue per user (ARPU) growth from price increases enacted in mid-2023 and ongoing, albeit more modest, subscriber growth.”
The linear TV operation could also stabilize, the report added, given that the company will air the next Super Bowl and also reap a windfall from political advertising this year.
Nevertheless, S&P added, “If these assumptions don’t materialize to the extent we are forecasting due to a more competitive streaming environment or an acceleration in declines in linear television, we could reassess our rating or outlook.”
Paramount stock entered the final stretch of Wednesday trading up 2% despite the news, though it is still a fraction of where it was when the merger of Viacom and CBS closed in 2019. (The merged company later rebranded as Paramount Global.)
