A blockbuster sale that turned bruising by breakfast
Paramount Skydance hit the market with $52 billion of bonds and loans to back the largest Hollywood buyout on record, its takeover of Warner Bros. Discovery. By Thursday morning, prices were sliding and investors were sitting on hundreds of millions in mark-to-market losses.
The eight-year junk-rated dollar notes, sold at 100 cents on the dollar the prior day, were already trading a touch above 95 cents. Loans and higher-grade bonds also sagged, and the tab for hedging Paramount's credit jumped to its highest level in 17 years. It was a broad risk-off day for corporate bonds too.
Underwriters typically leave a little upside for new buyers. Not this time. The quick turn echoed June's stumble when SpaceX rolled out $25 billion of bonds that promptly struggled.
Why the deal priced now and what changed
Investors peppered Paramount with questions this week about the post-merger debt burden and aggressive cost-cutting targets. With yields rising in recent months on renewed inflation worries, the company had to accept higher financing costs. Paramount also faced a clock: lawsuits that had blocked borrowing earlier were resolved late last month, and the company agreed to pay a $7 million daily fee if the Warner deal failed to close by Sept. 30. The closing is now targeted for Oct. 6, and by Thursday the stock was down as much as 7.5%.
"The timing was partly forced. Paramount is paying meaningfully more in interest than it would have earlier in the year, and the delay cost the company hundreds of millions of dollars," said Tony Trzcinka of Impax Asset Management, where he is a portfolio manager. "That left little room to wait for a better window."
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Paramount beat Netflix Inc. in the bidding for Warner. Apollo Global Management Inc., Bank of America and Citigroup arranged the initial financing before syndicating it across 18 banks. As prices tumbled early Thursday, traders vented to the lead banks by message and phone, according to people familiar with the discussions.
Bank of America provided no comment. Apollo wasn't immediately available. Citigroup's Leon Kalvaria said the financing "turned out incredibly well in a choppy market."
Order books thinned, and some buyers got too much
Interest in the investment-grade tranches reached roughly $80 billion, down from a $109 billion high-water mark. On the longest maturities, more than half of the peak demand evaporated, a pattern similar to June's SpaceX sale. As some investors balked late, others ended up receiving most or all of what they requested, especially in the long end, leaving them heavier than planned and quick to cut back, people with knowledge of the allocation said.
The 10-year investment-grade bond of $5.25 billion was quoted around 2.78 percentage points over the benchmark Thursday, Trace data show, after being issued at a yield 2.625 points above Treasuries. Shorter-dated notes saw only slight spread widening.
The bigger market read and what to watch next
Risk premiums widened across both high-grade and high-yield markets, while credit default swaps climbed to their highest level since March. Paramount's CFO Dennis Cinelli called the drop "one-day choppiness in the market," adding, "We were in the market not for a one-day trade, but to execute a transformative transaction to create a next-generation entertainment and technology company."
For everyday investors, here is the takeaway: when a towering deal hits in a jittery tape, even blue-chip slices can wobble. If you own bond funds or credit ETFs, these kinds of syndication hiccups can show up as short-term blips in pricing, especially around longer maturities and riskier tiers.
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