Wall Street has reacted well to Sunday’s approval by a special Paramount Global committee to allow David Ellison’s Skydance Media to take over the conglomerate in a complicated deal valued at around $8 billion. 

Amid declarations of cost-cutting and reinvestment in the entertainment company, share prices are still up more than 13% vs. just before it was reported last week that Ellison was back in discussions to purchase Paramount. 

Also read: David Ellison Spells Out Goals for ‘New Paramount’

But the major credit rating agencies say Ellison’s revival plan might not be enough to stave off another downgrade, which would place Paramount into junk territory. 

“The review for downgrade is prompted by the ongoing secular pressures on the company’s television networks and the slow pivot to reach direct-to-consumer streaming scale and Paramount’s announced agreement to merge with a smaller scale independent film and TV studio in Skydance,” Moody’s said in a note, published Tuesday morning.

“Moody’s believes that the company will endeavor to build on its own franchises as outlined in the Skydance Consortium new strategic plan,” the note added. “But without much more avid IP such as more evergreen franchises to build on or heavier investment by Paramount, we believe that the company may remain competitively disadvantaged. Therefore, either a new materially different strategy is needed or it is possible that the initial investment into the company by the Skydance consortium may not be sufficient to stabilize the credit profile. As a result, it is possible we could downgrade the ratings in the coming months, well before the pending merger closes.”

S&P Global, which downgraded Paramount to “BB+” status in March, plans to keep the company there … for the time being. 

“We view these initial comments positively, but note that we will continue to evaluate the transaction as more details emerge and will ultimately evaluate the impact to Paramount’s credit quality by management’s ability to execute its strategy,” a Tuesday S&P investor note said. “The company expects the transaction to close in the first half of 2025. The 14-month timetable to closing presents a potential risk for the company as worsening secular industry pressures (and the potential for macroeconomic headwinds) could impede the company’s ability to achieve its strategic and financial targets.”

S&P Global said Thursday that it has raised its credit rating on Mediacom Communications one notch to BBB+/Stable after the cable company lowered its leverage ratio to 1.4 times EBITDA, and committed to keeping the metric below 2 times for the foreseeable future.

Mediacom previously had a BBB/Stable rating -- which is also considered to be investment grade --  on its debt, and the increase will make it easier for the company to access capital markets at favorable interest rates. S&P Global said Mediacom’s leverage commitment is well below the ratings agency’s BBB rating threshold of 2.5 times EBITDA.

S&P said the "stable" outlook reflects Mediacom’s predictable earnings growth and cash flow generation, which enables the company to lower its leverage by about 0.5 times per year.

S&P said Mediacom has consistently reduced its debt since going private in 2011. While it could beef up its debt in the future, especially if it considers a strategic acquisition, the ratings agency said that the commitment to keeping leverage at 2 times or lower gives it “greater clarity into the limitations on the magnitude of any potential re-leveraging.”

In raising Mediacom’s credit rating, S&P said it believes Mediacom has an affordable network upgrade path to ensure its place as the fastest provider of broadband service in its territories, and that its capital expenditures-to-revenue ratio should remain flat at about 15%. 

“Therefore, we expect cash flow conversion rates to continue to improve with higher EBITDA margins supported by solid, albeit moderating, HSD growth,” S&P said, adding that it expects annual broadband EBITDA growth of between 4% and 6% and average revenue per unit (ARPU) growth of 5% to 8% over the next two years. ■ 

Moody’s Investors Service raised its credit rating on Netflix Thursday to Ba1 -- one notch below investment grade -- adding that despite fears that lockdown-related customer growth could wane, the momentum should continue throughout the year.

Pandemic lockdowns helped push Netflix subscriber growth to record heights in 2020 -- fueled by a second half customer surge -- and that growth should continue as entertainment options remain limited, Moody’s senior VP Neil Begley said in his report. 

"The performance of Netflix in the second half of 2020 materially exceeded our forecasts at the time we placed a positive outlook on the ratings a year ago," Begley wrote. “These favorable developments are pulling forward the credit improvement trend by as much as another year and have resulted in a two-notch upgrade and maintaining a positive outlook.”

Also Read: Netflix Ups the Ante with Latest Deals 

The upgrade brings Netflix’s long-term credit rating one notch below investment grade, which would mean lower interest rates and better access to capital markets. Netflix has about $14 billion in long-term debt and has pledged to keep its leverage in the $10 billion to $15 billion range as it generates more cash.  

The SVOD pioneer added about 8.5 million U.S. and international subscribers in Q4 2020, far outpacing its own prediction of 6 million additions. For the full year, paid net subscriber additions were 37 million, a record for the company. Those increases came despite a price increase implemented in October that raised the cost of the most popular Netflix subscription from $12.99 to $13.99 per month. 

Netflix is scheduled to release its first quarter results on April 20. When it released Q4 results in January, the company issued guidance that it expected to add about 6 million customers worldwide in Q1.

Begley expects subscriber additions to remain volatile quarter-to-quarter as they have in the past, adding that a leaner content pipeline in the early months of the year could affect subscriber growth until production catches up. 

“But we also believe that the medium and longer-term outlook remains very favorable for the company as it continues to build on its significant scale to penetrate global addressable homes of over 1.5 billion, sustaining competitively low cost per viewing hour leadership, growing average revenue for members, and reinvesting in even more content as it benefits from this virtuous cycle,” Begley said.

S&P Global said it has raised its corporate credit rating on Mediacom Communications to BBB with a stable outlook, two notches above its previous rating of BB+ and spurred by the cable operator’s commitment to debt reduction. 

Mediacom has consistently reduced debt, lowering its debt-to-EBITDA ratio to 2.4 times in the past 12 months, well below S&P’s upgrade trigger of 3 times cash flow, the credit rating agency said in a press release.

In addition, S&P noted that Mediacom chairman, CEO and controlling shareholder Rocco Commisso has committed to keeping the company’s leverage ratio below 3 times “which provides us with greater clarity into Mediacom's financial policy and potential for re-leveraging,” S&P said in the release.  

S&P said it has reassessed its ratings action triggers to better reflect its more favorable view of the telecom, cable and media business. 

An investment grade rating generally means that a corporate bond has a low risk of default. For a company, that usually means better access to capital and lower interest rates. 

“Our ready access to the financial markets and our low cost of debt capital clearly reflect that we have been granted investment grade treatment by investors for the past several years,” Commisso said in a separate press release. “I am pleased to see S&P also acknowledging, with a ‘double upgrade,’ that Mediacom has earned this enviable credit rating, given its strong operating performance, high quality credit metrics and rigorous financial discipline.”

In the second quarter, Mediacom added about 47,000 broadband customers, more than three times its additions in the prior year, while video subscriber losses remained stable at about 17,000. Revenue for the period was up 3% to $528.5 million and adjusted OIBDA rose 8% to $218.1 million.  

Moody’s Investors Service upgraded the credit ratings for privately held cable operator Mediacom Communications, adding that the small-market MSO has improved its leverage ratio substantially since going private in 2011.

Moody’s upgraded Mediacom’s Corporate Family Rating (CFR) to Ba3 from B1 and its Probablility of Default Rating to Ba3-PD from B1-PD.  The credit rating agency also changed its outlook on the cable operator to stable from positive.

Improved credit ratings typically mean a company has greater access to cheaper capital.   

According to Moody’s, it took the action because Mediacom has lowered its debt-to-cash flow leverage ratio from about 6.7 times in 2011 when it completed plans to go private, to about 5.1 times in September 2014. Moody’s estimated that Mediacom would continue using its free cash flow to pay down debt and could bring that leverage ratio below 5 times this year. Since going private, Moody’s said Mediacom has repaid about $450 million in debt.