S&P downgraded Warner Bros. Discovery to BB+ amid continued revenue and cash flow declines at its linear TV operations. Anything BB+ and below is junk bond status for the giant ratings agency.
It reaffirmed its “negative” outlook. It also said that, from a credit perspective, it’s not a fan of a possible WBD split, teased by CEO David Zaslav last week after an internal reorganization split the company into two divisions (Streaming & Studios and Global Linear Networks) this month. Separation would be “a credit negative,” S&P said.
Linear woes saw S&P lower its forecast for EBITDA (earnings before interest, taxes, depreciation and amortization) for 2025 and 2026 to about $9 billion for the next three years. That translates into expected leverage of 4.3x at the end of 2025 and 3.9x in 2026, heading in the right direction but still significantly above the agency’s 3.5x leverage threshold for the rating. S&P sees leverage remaining above 3.5x until 2027. Leverage is a ratio indicating the amount of debt compared to assets or equity.
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Debt has been the company’s bugaboo since Discovery acquired Warner Media three years ago. Despite paying down billions, it’s still a heavy lift.
On linear specifically, S&P forecasts that EBITDA at global networks will drop 20% to $6.5 billion due to accelerating revenue declines and elevated content costs from newly acquired sports rights content coupled with its last year of NBA rights in 2025. It sees advertising down 11% due to continued pressure on ratings and less sports than peers. It also anticipates distribution will decline 8% due to slower rates of price increases and more subscription fees being allocated to streaming in recent distribution deals.
S&P changed its outlook on WBD to “negative” in August of 2024.
“WBD’s total advertising and distribution performance has lagged peers due to its higher exposure to general entertainment content, weaker portfolio of domestic sports rights, which is further exacerbated by the loss of the NBA broadcast rights after the 2024/2025 season, and a smaller base of ad-supported streaming subscribers,” wrote S&P analysts.
The agency does “not expect WBD to materially accelerate deleveraging through asset sales, but to instead prioritize investment in its growth businesses, which will extend the deleveraging path.” It’s talking about investment in streaming as WBD just switched the name of its fast growing flagship platform back to HBO Max. But even there S&P expects the pace to moderate in 2026 with ramped up investment in content, marketing and international expansion as it launches in key markets like the U.K.
“While this strategy may maximize its long-term growth potential, it signals a tolerance to maintain leverage above the 3.5x threshold for the rating beyond 2026,” S&P said.
The agency noted that it has not factored a separation of the company into its current rating, but that a move would be a credit negative.
Comcast is in the process of splitting of its cable networks. Zaslav and CFO Gunnar Wiedenfels both emphasized last week that WBD has no specific plan at this moment to follow suit.
“While we are not aware that WBD has made a decision on a potential split of the company, a separation would likely pressure ratings because it would weaken our view on the individual businesses, particularly the Global Linear Networks company, due to ongoing secular pressure in the linear television ecosystem,” S&P said.
