S&P Global Ratings $SPGI has downgraded Warner Bros. Discovery Inc. $WBD to BB+, pushing the media conglomerate below investment grade for the first time. This adjustment follows ongoing declines in revenue and cash generation within the company’s linear television operations.
The primary catalyst for the downgrade is sustained cash flow pressure from the shrinking linear TV segment. As viewership migrates to digital platforms, traditional broadcast and cable revenues across the sector have eroded, impacting balance sheet strength for major players.
S&P projects Warner Bros. Discovery’s leverage ratio to rise to 4.3x by the end of 2025. This figure exceeds the 3.5x threshold typically required to maintain investment-grade ratings. Elevated leverage exposes the company to higher refinancing risk and could trigger stricter terms from lenders.
A below-investment-grade rating, often termed “junk”, typically results in increased borrowing costs as lenders demand higher risk premiums. For WBD, this shift may limit access to favorable credit and complicate future debt issuance. The company’s capital allocation priorities and spending flexibility could be directly affected, especially as it manages significant legacy obligations and continues investing in content.
Anticipated Effects on Operations and Strategy
Higher debt servicing expenses due to increased yields on new and existing bonds;
Limited financial flexibility for major acquisitions, share buybacks, or significant new streaming investments;
Enhanced scrutiny by investors concerned about sustained declines in ad-supported linear TV revenues;
Potential re-evaluation of the balance between legacy media assets and growth strategies in streaming and direct-to-consumer platforms.
The downgrade highlights broader structural challenges facing legacy media groups as they transition from linear channels to digital ecosystems. WBD’s need to contain leverage and stabilize cash flow has become increasingly urgent against the backdrop of a fragmented and competitive streaming market.
Warner Bros. Discovery’s shift to junk status underscores the profound impact of industry disruptions on established media entities. While cost pressures and secular decline in linear operations persist, the path forward will likely require disciplined capital management and a renewed focus on scalable digital strategies.
Warner Bros. Discovery’s downgrade is a wake-up call for traditional media struggling to adapt in a rapidly evolving digital landscape.
WBD's downgrade by S&P highlights the vulnerability of media giants amid a shifting revenue landscape.