Skydance starts life with $80 billion of debt. Here’s what that means for its shares

What’s going on here?

Paramount's purchase of Warner Bros. Discovery closed on Tuesday, and the combined company now trades on the New York Stock Exchange as Skydance under the ticker SKYD. Warner shareholders were paid about $31 a share in cash. To fund that, the company raised $47 billion of new equity at $12 a share from Larry Ellison, RedBird Capital and the sovereign funds of Saudi Arabia, Qatar and Abu Dhabi, and borrowed heavily through Bank of America, Citigroup and Apollo. The result is a business with nearly $70 billion of annual revenue and about $80 billion of net debt. On its first day the stock opened at around $9.70.

What does this mean?

The key number for investors is leverage: debt divided by earnings before interest, tax, depreciation and amortization. Skydance expects that ratio to sit around 7 times in 2026 and 2027, and wants it at 3 times by the end of 2029. Credit markets usually treat anything above 5 times as highly leveraged, so the company starts well outside the comfort zone of many bond investors. Getting to 3 times requires both higher earnings and debt repayment, and every year of delay means more cash spent on interest instead of films, shows or sports rights.

The plan relies on more than $6 billion a year of savings within three years. Management says most will come from combining technology systems, procurement, marketing and property, and it points to Paramount beating its savings targets after its own merger with Skydance in 2025. Thousands of job cuts are also expected. The challenge is that cable television, still a large source of cash for both companies, is shrinking every year, so savings partly have to replace earnings that are disappearing on their own.

There are limits on the easiest levers. Under its settlement with state attorneys general, Skydance must release 30 films a year in each of the first two years and cannot sell or close the Paramount or Warner Bros. studio lots in Los Angeles for five years. That rules out some quick asset sales and fixes part of the cost base. The company has also promised to merge Paramount+ and HBO Max into one service over time, which could reduce costs but risks losing subscribers during the transition.

Investors have reasons to be cautious. Large media mergers such as AOL–Time Warner and AT&T–Time Warner destroyed value as debt and integration problems piled up. The opening price, below the $12 that the new equity investors paid only months ago, suggests the market wants proof before giving credit for the savings.

The bull case

If Skydance delivers its savings quickly and the merged streaming service keeps subscribers, earnings could rise fast enough to cut leverage ahead of schedule. Owning two major studios, HBO, CBS and CNN gives it scale to compete with Netflix and Disney, and backers with very deep pockets reduce the risk of a funding crisis.

The bear case

Shrinking cable revenue, settlement limits on studio cuts and the cost of competing for content could slow earnings growth. Higher interest rates make the debt more expensive to refinance, and deep job cuts could damage the creative output that gives the brands their value.