رونوشت کامل Syndication Nation — The $81bn HY/IG jigsaw puzzle behind Paramount-WBD

for these large M&A driven offerings. So, on both sides of the aisle, it’s definitely one to watch. And it also seems like this deal might be a bit more doable because of how it's split between high yield and investment grade. Because my understanding that, you know, if this was just a high yield deal, it would be a nonstarter, just the sheer amount of paper you'd be shoving into the market. But it seems like there's precedent for this. I wonder if you'd just go bit into, you know, how TMT is sort of used to these split stack structures. William Hoffman Well, certainly so. I mean, like, you know, going back to, you know, Warner Bros. Discovery, previous owner AT&T, I mean, they have a huge debt stack. Investors are used to taking that down. Verizon, like you said, biggest, you know, at one time, biggest deal or still biggest US dollar deal ever. So these sorts of TMT deals are definitely the things that you expect to come in this size. I would say Charter is really the name that sticks out from sources that we talked to. It's already split high yield and investment grade. You know, they have secured debt that is up into investment grade and then high yield debt that is unsecured down for the high yield investors. So that's exactly what we're looking at with a Warner Bros. Discovery Paramount deal is some form of, we'll get into the specific numbers in a second here, but, you know, a form of a certain portion that's unsecured, that's the high yield investors and a certain portion that's secured up into investment grade. Sunny Oh Okay. That makes a lot of sense. Okay. So could you sort of just really break it down, you know, what the debt stack will look like? Because I imagine it's still in discussion. So these numbers can change, but based on what we've heard so far, could you just sort of back into the numbers? William Hoffman Yeah, this is sort of the portion of the podcast where I say a bunch of numbers in an audio format and it becomes hard to follow. I would encourage people to go check out our piece that's available for free on 9fin.com. You can check out the news and insights page where we break some of this down visually as well. And it might be easier to read, but to try and give our audio listeners a little bit of flavor here. The goal that I want people to think about here is that they want to get to a 50-50 split in IG rated debt and high yield rated debt, roughly. Not exactly, but roughly. So how do you get to a 50-50 split, right? The total stack consists of $32 billion of existing bonds and roughly $49 billion of syndicated debt. So that's the old portion, the new portion. Shall I start with the existing? Does that make sense? Sunny Oh Yeah, let's go from there. William Hoffman Okay, so the existing stack, right? That's your $32 billion. That's Warner Bros. Discovery, $17.8 billion that they have outstanding. Again, like old Discovery notes. You know, a lot of these like old legacy notes, even like the notes that they

issued to get out of AT&T and do that whole tie up and to buy Discovery. So just a sizable debt stack on its own. Then we got Paramount, $14.6 billion. Again, mergers, tie-ups. We’ve got Viacom debt. We’ve got CBS debt. Stuff that's going back a little while. So both of those combine to about $32 billion. And all of that is going to be high yield rated. There was some debate at one point about could Paramount potentially hold on to IG ratings? That's not going to be the case. Fitch downgraded them. So all of that debt is now going to be high yield rated. So then we look at the new debt. Okay. Let's work backwards and use some round numbers here. Because, like you said, this is all a little bit fluid. The total debt stack is roughly a little bit more than $80 billion. And remember that 50-50 split. So $80 billion needs to be split about 50-50. So only about $40 billion can be high yield rated. And they already have 32. So that means they can only add roughly $10 billion is what sources are telling me. Maybe it's 10, maybe it's 12, something like that. So they can only add about that much on the high yield side. So that would be your unsecured debt. That'd be, you know, unsecured bonds. Well, actually, we sort of think it might be second lien bonds, which we'll get to in a second. It might be a little bit above the existing unsecureds. But either way, that debt would be high yield rated to high yield investors. That leaves about $40 billion, probably a little less than $40 billion. It's going to go to IG rated issuance. And if you look at that $40 billion, you know, that's pretty much right in line with like where Charter is. $40 billion would be very digestible. It's basically what Amazon just did. Verizon has done it in the past as their biggest deal. So when you break it down that way, it makes it a little bit more digestible, I would say to folks. Sunny Oh Yeah, it says $10 billion on the high yield side doesn't sound too daunting. You know, $40 billion of IG debt doesn't sound too daunting. It seems like for the most part, this could be easily swallowed. And my understanding is there to get this done, they will hit almost every single part of financial markets. Is that right? William Hoffman Yeah, we're talking Euros. We're talking high yield bonds secured. We're talking term loans secured up in IG as well. And then the second lien notes that will be sold to high yield investors. And then there's sort of an issue of the existing unsecureds that might precipitate some sort of exchange. And I know that you did a little bit more digging on that. Sunny Oh Yeah, yeah. So let me try to do some justice to what is a very, very complicated maneuver that Paramount will need to attempt in order to bring this new offering. So the understanding is that there's around $32.4 billion of existing debt that's already rated junk. But to issue new debt that sits ahead of this old debt, the company may have to pay sort of a 10 point consent fee to existing bondholders. That's sort of the starting line for how some of these existing WarnerMedia holders are thinking about what will need to take place before this merger has to go through. The problem is that, you know, to pay a 10 point consent fee on all that debt is a huge amount, you know, it could potentially cost billions. And so the understanding is that management, based on what they're thinking about each maturity and where it might make sense, they could either offer a better interest rate. Or they could exchange those old notes for new second lien positions. And yeah. And just as a reminder, this whole 10 point consent fee, this all came from 2025 when it was a Sunny Oh result of a coercive Well, some would deem as coercive exchange offer as part of WarnerMedia's split plan split of its linear assets and its streaming assets. Obviously, the way this merger is coming through, they're putting it all back together. But Sunny Oh to get this done, they will have to unwind a bit of that exchange offer that took place. And so I think a lot of the existing bondholders are doing a lot of game theory. At the moment, Paramount has not brought up an offer, but at least there's a lot of thinking around what this number could look like. And so we'll see how that plays out. And I think that's going to probably be the next stage of negotiations that would be worth bearing in mind. It may seem like somewhat of a niche thing, but, you know, in the end, it's we're talking billions of dollars and it's going to be a key piece to ensure this merger goes without a hitch. William Hoffman Yeah. And I've talked with some different sources that say, you know, if Paramount Warner Bros. Discovery wants to pay the 10 point fee on all the debt they could, it would be a worst case scenario and they wouldn't want to do it, but they could if they wanted to. You know, I guess we'll see if that's a bluff or not. But, you know, the thought being that, you know, they could go out and do it. Obviously, it's going to be a lot. They're going to save a lot of money if they can, you know, come to an agreement with existing holders for some sort of, like you said, change in the coupon there or, you know, other changes, the kinds of tools that they can use to get investors on board. Because otherwise, you know, you're going to be left with unsecured existing unsecured debt legacy debt, like I said, from all these like previous failed mergers that is sitting below close to $80 billion of other debt. You know, it's not going to be an advantageous place to be in. Sunny Oh Yeah, no. My head's just starting to hurt thinking about like what a cap stack would look like in the event there was some weird stub piece of paper because bondholders didn't consent to this deal. So it just seems like it would be a mess. But it seems like behind all these games, there is a simpler story to be told also about Larry Ellison. He's putting in a lot of money is from my understanding to

make this deal go through. And I imagine a lot of the debt holders, either the existing or the potentially new ones, are taking a lot of comfort in that. William Hoffman Yeah, it's a $45.7 billion equity commitment, which is a big backing. And essentially the thought being that the bondholders would sit above that equity commitment, too, if anything were to happen. So that's a big boon for them. It really, you know, protects the deal quite a bit and gives bond investors quite a bit of comfort. And we see this with the X deal with Tesla, like Elon Musk backing of his companies. Like when you have a very wealthy backer like that, it does a lot to sort of smooth over some of these like, you know, ragged edges that could be detrimental to other deals. Larry Ellison, obviously CEO of Oracle. He has a ton of equity and a huge company there. Oracle itself is going to be providing the cloud service infrastructure for Warner Bros. Discovery. So they have a built in thing there. And Larry Ellison's son, David Ellison, is the is the CEO of Paramount and soon be Paramount Warner Bros. Discovery. So, you know, it's it's all sort of connected. It's a little bit circular. But I think, you know, there's a lot of interested parties that want to make it make it happen and work out for everyone. So… Sunny Oh Yeah, and I imagine there's an interesting political angle there, just given what it took to make this merger go through. But I think that's probably for another podcast, you know, just given the amount of backstory that's been written about in the headlines. So I was wondering, like, beyond the equity check, beyond the new debt, it seems like there's also the question of what all those M&A guys like to talk about: synergies, you know, like, can they actually pay this huge debt load off? Because it's been a tall task historically for other large media conglomerates that have been tied up. You know, we just look at WarnerMedia itself, in 2022, they took on a huge amount of debt just before interest rates rose. And then they had to work it off as they were competing against these other incumbents in the entertainment space with deep pockets, sometimes even more nimble, like Netflix. Talk us through that. How are lenders thinking about that challenge and the need for debt reduction? William Hoffman Yeah, no company has been able to do it so far. So that's a problem. But no company has ever gotten to this scale either. So there's a little bit of optimism there. I mean, the number is $6 billion in cost savings synergies here. And the folks that we talked to seem to think that's doable. The main reason being you're combining two studios. That's the big cost for the company is running these, you know, big Hollywood studios in LA. And now you don't have the cost of two. Now, you know, it's going to be a lot of layoffs. That's just the brass tacks of it. It's going to be, you know, you don't need multiple accountants for both studios run separately. You can combine technology stacks. So you're not, you know, playing off different technology contracts for different studios. You're combining IT infrastructure across all those things. So when you start adding up all those potential savings, the $6 billion figure looks doable. It's staggering. It's quite a bit of synergies, obviously, compared to other LBO deals that we look at. It's also double, essentially, what Netflix was proposing. But Netflix wasn't going to have the same level of combination. They don't already own a studio. So there was no combination with the studio. They would be taking on those costs from the Warner Bros. studio, if that's how it went down. They have a streaming operator, so they could combine, you know, HBO and Netflix in theory. But, you know, the hard assets were going to be cost prohibitive for Netflix. With this combination, with Paramount and Warner Bros. Discovery, you really do have very similar kinds of businesses that can probably combine pretty effectively and quickly and start churning out some real EBITDA. Sunny Oh So good news for lenders, bad news for Hollywood. William Hoffman Yes. Yeah. I mean, I think either deal was probably bad news for Hollywood, right? It was, you know, bad news either way. I think either one was going to result in some layoffs or, in Netflix's case, you know, an owner that I think a lot of people were skeptical of. In this case, I think people like the Ellisons as an owner a little bit. They've proven that, you know, Paramount can have some success in real movie studios. Everyone's very concerned about the survival of theaters and getting movies out to the theaters. And the Ellisons seem to be really dedicated to that in a way that Netflix did not seem to be. Or at least they were trying to show that they were, but people weren't believing it. And so there's that aspect. But now, you know, Hollywood's looking at it like, oh, well, we have the better owner, but is that going to come at the cost of a lot of studio jobs? And that's a hard pill to swallow. Sunny Oh Yeah. Yeah. No. I mean, I'm pretty worried about my streaming subscription at the moment, you know? That tie-up, I feel like they're going to jack up prices just to make it work. But it’ll be interesting to see how it pans out. But, no, this was great chatting. This huge, momentous merger for the TMT space, but also just for our little industry, you know? Leveraged finance, investment grade. William Hoffman Yeah. It's going to be a huge deal across asset classes. And, honestly, I don't know that we've seen a deal quite this big that spans asset classes like that. And I think this is the convergence of what 9fin is always preaching, which is that, you know, these asset classes are converging and getting closer to one another. So, we're happy that we have our new IG vertical to start getting into the weeds of that and combining it now with already seller reporting on the levfin side. And we can bring you both sides of this deal. Sunny Oh Yep. Stay tuned. And this was great. And thanks for the time, Will. William Hoffman Thank you, Sunny.