Standard & Poor's issues a rating warning for Paramount Skydance (PSKY.US)! Sky-high acquisition prices could lead to debt pressure and a possible surge in leverage ratios.

S&P Global, Inc. rating analyst stated that the proposed $111 billion acquisition of Warner Bros. Discovery by Paramount Sky (PSKY.US) will put pressure on its credit rating, although the merged company may eventually reduce its debt levels over time. S&P Global, Inc. currently gives Paramount Sky a "BB+" rating, which is the highest junk level. The entertainment company successfully reached an agreement this week to acquire Warner Bros. Discovery, beating out Netflix (NFLX.US) after months of competition. Earlier this week, Paramount Sky increased its offer to acquire all shares of Warner Bros. Discovery from $30 per share to $31 per share, in an all-cash deal, higher than Netflix's offer of $27.75 per share. The board of Warner Bros. Discovery stated in a Thursday statement that Paramount Sky's total new acquisition offer of $111 billion was more favorable to shareholders than its earlier agreement with Netflix. With the improved offer from Paramount Sky, Netflix was originally given four working days to modify its own proposal. However, the streaming giant ultimately chose to withdraw, bringing the months-long acquisition tug-of-war between the two parties to a close. S&P Global, Inc. rating analyst Naveen Sarma said on Friday, "The merged company will have a very large debt burden, around $800 billion. Given the leverage of the merged company, it is clear that the rating will face significant pressure." He added, "Its leverage will exceed the acceptable level to maintain this rating." Sarma estimated that, depending on the final financing terms, the leverage ratio - the ratio of company debt to a profit indicator - could reach 7 times or higher. However, he said that in order to maintain the "BB+" rating, the company may need to keep the leverage ratio below 4.5 times. The acquisition planned by Paramount Sky is expected to be partially financed by $575 billion in debt, with funding coming from Bank of America Corp (BAC.US), CitiGroup (C.US), and Apollo Global Management Inc (APO.US). Sarma stated that the merged entity could reduce its leverage levels by selling overlapping assets (such as television production facilities and studio lots) and reducing costs.