Paramount Skydance Corp’s takeover of Warner Bros Discovery Inc is expected to feature an unusual combination of investment-grade and junk-rated debt, as Wall Street banks turn to as many markets as possible to raise $57.5bn of debt for the acquisition.
A trio of lenders are initially providing temporary financing, which will be refinanced with about two-thirds or more investment-grade debt and the rest in high-yield bonds, according to people familiar with the matter. Typically, borrowers opt for either investment-grade financing or leveraged financing, rarely both in combination.
The high-grade debt is expected to include loans and senior secured bonds, while the junk bonds will likely be unsecured, said the people who asked not to be identified discussing private deliberations.
Banks are set to be invited to join the syndicate in the coming weeks, the people said. Lenders have already asked to get on the deal, vying for a spot on the high-profile financing. The company expects to borrow in dollars and euros, with financing expected to wrap up by the end of summer, they said.
The high-stakes bidding war for Warner Bros ended this week after Paramount raised its offer to $31 a share. Netflix Inc, which had previously agreed to buy most of Warner Bros for $27.75 a share, declined to match it.
Bank of America Corp, Citigroup Inc and Apollo Global Management Inc. are providing the $57.5bn bridge loan. For lenders, underwriting mergers and acquisitions is one of the most lucrative businesses.
Representatives for Paramount, Bank of America, Citi and Apollo declined to comment. A spokesperson for Warner Bros. didn’t immediately respond to a request for comment.
While the majority of the debt in the LBO will be high-grade, there’s poised to be roughly $18bn of junior unsecured high-yield bonds, the people said. That level of junk debt is in line with the financing backing the leveraged buyout of Electronic Arts Inc., which is set to be the biggest LBO on record.
Bank of America, Citi, and Apollo previously committed to providing $54bn of debt for Paramount’s bid. In this transaction, the banks are supplying about $39bn of new debt, and $15bn to backstop a Warner Bros. bridge facility, according to a statement. On top of that, the lenders committed to an additional $3.5bn to backstop Paramount’s existing revolving credit facility.
Paramount, led by Chief Executive Officer David Ellison, made adjustments to the terms of its offer after repeated rejections by Warner Bros. Those included personal guarantees on $45.7bn in equity from a trust created by Ellison’s father, Oracle Corp Chairman Larry Ellison, one of the world’s richest people.
People with knowledge of the matter said Paramount paid the $2.8bn breakup fee that Netflix was owed for terminating the agreement with Warner Bros. Paramount also agreed to pay Warner Bros $7bn if the deal fails to win required regulatory approvals.
