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A Warner Bros. Spinoff Puts $41 Billion of Bonds at Risk of Junk

Signage at a Warner Bros. office in New York, US, on Saturday, Feb. 17, 2024. Warner Bros Discovery Inc. is scheduled to release earnings figures on February 23. Photographer: Yuki Iwamura/Bloomberg (Yuki Iwamura/Bloomberg)

(Bloomberg) -- There are $41 billion of Warner Bros. Discovery Inc. bonds that could fall out of investment-grade territory if the media company decides to spin off its namesake movie studio and streaming businesses, according to Bloomberg Intelligence. 

A breakup would likely leave the remaining firm, focused on WBD’s legacy TV operation, struggling to attain its leverage target and possibly cause bonds to widen toward junk-rated peers, BI analyst Stephen Flynn wrote in a Monday note. 

The three major international credit raters all have WBD at their lowest investment-grade level, and with stable outlooks. 

The Financial Times reported last week that WBD is considering moving the Warner Bros. studio and Max streaming service into a new company free of WBD’s $39 billion debt load. While shares climbed last week following the report, WBD dollar bonds weakened. Spreads on some notes continued to widen Monday, according to pricing source Trace. 

Falling to junk territory could make WBD the issuer with the most high-yield bonds outstanding. Charter Communications has $27.2 billion of notes in the Bloomberg US high-yield index, the highest in the gauge, Barclays said in a note earlier this month.

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