S&P downgraded Warner Bros. Discovery to BB+ amid continued revenue and cash flow declines at its linear TV operations. Anything BB+ and below is junk bond status for the giant ratings agency.
It reaffirmed its “negative” outlook. It also said that from a credit perspective it’s not a fan of a possible WBD split, teased after an internal reorganization into two divisions (Streaming & Studios and Global Linear Networks). That could put more pressure on ratings.
Linear woes saw S&P lower its forecast for EBITDA (earnings before interest, taxes, depreciation and amortization) for 2025 and 2026 to about $9 billion for the next three years. That translates into expected leverage ( ) of 4.3x at the end of 2025 and 3.9x in 2026, heading in the right direction but still significantly above the agency’s 3.5x leverage threshold for the rating. S&P sees leverage remaining above 3.5x until 2027.
Specifically, S&P forecasts that EBITDA at global networks will drop 20% to $6.5 billion due to accelerating revenue declines and elevated content costs from newly acquired sports rights content coupled with its last year of NBA rights in 2025. It sees linear advertising down 11% due to continued pressure on audience ratings and less sports than peers. It also anticipates linear distribution will decline 8% due to slower rates of price increases and more of the subscription fees being allocated to streaming in its distribution deals that were renewed in 2024.
“WBD’s total advertising and distribution performance has lagged peers due to its higher exposure to general entertainment content, weaker portfolio of domestic sports rights, which is further exacerbated by the loss of the NBA broadcast rights after the 2024/2025 season, and a smaller base of ad-supported streaming subscribers,” wrote S&P analysts.
The firm said it does “not expect WBD to materially accelerate deleveraging through asset sales, but to instead prioritize investment in its growth businesses, which will extend the deleveraging path.” That’s streaming in particular, with its flagship service just renamed HBO Max.
S&P changed its outlook on WBD to “negative” in August of 2024, and it hasn’t sold assets and won’t be able to on sufficient scale needed this year to impact the leverage ratio.
S&P noted healthy streaming growth at WBD but it expects the pace to moderate in 2026 as the company seeks to reinvestment in content, marketing and international expansion as it launches in key markets like the U.K.
While this strategy may maximize its long-term growth potential, it signals a tolerance to maintain leverage above the 3.5x threshold for the rating beyond 2026.
A potential separation of WBD is not factored into our current rating, but any separation of the company into a growth company, Streaming & Studios, and a Global Linear Networks company would be a “credit negative”.
WBD has just completed an internal reorganization into the two distinct operating divisions to enhance strategic flexibility and create potential opportunities to unlock additional shareholder value. That pretty much means a merger or sale of one of the pieces.
CEO David Zaslav and CFO Gunnar Wiedenfels said last week that there no specific plans but repeated that the division gives it options. Comcast is in the process of splitting of its cable networks.
“While we are not aware that WBD has made a decision on a potential split of the company, a separation would likely pressure ratings because it would weaken our view on the individual businesses, particularly the Global Linear Networks company, due to ongoing secular pressure in the linear television ecosystem,” S&P said.
