In under seven days, the competition to acquire Warner Bros. Discovery Inc. Has resulted in two debt agreements valued in the billions, positioning them among the most substantial of the last ten years.
TL;DR
- Paramount Skydance Corp. secured a $54 billion financing package for its Warner Bros. acquisition offer.
- Major Wall Street institutions like Bank of America and Citigroup provided debt commitments to Paramount.
- Netflix also secured $59 billion in unsecured funding from Wells Fargo and others for its pursuit.
- These substantial debt agreements highlight a recent surge in financing for AI data centers and M&A.
Paramount Skydance Corp. Recently emerged with a financing package potentially reaching $54 billion from Major Wall Street institutions, intended to bolster its $108 billion unsolicited offer for Warner Bros., a move occurring shortly after the corporation finalized an agreement with Netflix Inc.
Financing of this magnitude has been uncommon in recent years due to a slowdown in company purchases. However, this situation has recently shifted with a frenzy aimed at financing the construction of data centers to support the expansion of artificial intelligence, alongside an increase in mergers and acquisitions.
Bank of America Corp., Citigroup Inc., and Apollo Global Management Inc. Are furnishing the debt commitment to Paramount, as per a declaration on Monday. Each entity within the group has committed approximately $18 billion, representing one-third of the overall pledge, according to a regulatory submission.
Only last week, Netflix secured $59 billion in unsecured funding from Wells Fargo & Co., BNP Paribas SA, and HSBC Plc. This constituted another temporary loan to support its pursuit of a portion of Warner Bros. These kinds of bridge loans, which are typically superseded by long-term funding such as bonds, represent a vital stage for financial institutions in fostering connections with corporations to secure more lucrative assignments in the future.
Paramount’s bid at $30 a share in cash comes after Netflix agreed to buy Warner Bros. For $27.75 in cash and stock in a $72 billion deal. Paramount’s bid is for the entirety of Warner Bros., while Netflix is only interested in the Hollywood studios and streaming business. Paramount — which is backed by Larry Ellison, one of the world’s richest people — said its offer gives shareholders $18 billion more in cash than the Netflix bid would.
The Ellison family and RedBird Capital Partners are providing the financial backing for the $40.7 billion in equity funding for The Paramount offer. Also contributing financially are Affinity Partners, the private equity firm established by President Donald Trump’s son-in-law Jared Kushner, Saudi Arabia’s Public Investment Fund, Abu Dhabi’s L’imad Holding Company PJSC, and the Qatar Investment Authority. China’s Tencent Holdings Ltd., initially noted as pledging a $1 billion contribution, has withdrawn its participation as a financial partner, as indicated in the filing.
Ratings Game
Although substantial, the funding rounds for Netflix and Paramount don't quite reach the $75 billion in credit Anheuser-Busch InBev SA secured to support its purchase of SABMiller Plc back in 2015. This transaction represented the biggest bridge loan on record, based on information gathered by Bloomberg.
Despite this, financial institutions are aiming to secure substantial earnings from a long-anticipated resurgence in corporate takeovers. A single bank or a consortium of financial firms usually furnishes the initial short-term financing, subsequently involving other lenders to distribute the exposure once the deal is publicly disclosed. Following a period, these temporary loans are substituted with debt instruments marketed to large-scale asset managers.
A significant distinction concerning Paramount's temporary financing is its backing by the firm's holdings. In contrast, Netflix's temporary loan lacks security, implying no particular assets are pledged. This disparity is probably attributable to the varying creditworthiness assessments of each entity.
Netflix, holding an investment-grade rating, anticipates substituting its bridge financing with approximately $25 billion in bonds, alongside $20 billion in delayed-draw term loans and a $5 billion revolving credit facility, arrangements commonly held by financial institutions. Paramount, conversely, possesses inferior credit ratings, with S&P Global Ratings assigning it a BB+ score, a notch below investment grade, and Fitch Ratings giving it a BBB- rating, placing it near speculative-grade status.
The premium sector generally attracts a wider range of investors and provides more affordable funding, making it better equipped to handle a substantial financial undertaking of this magnitude.
