Bondholders have spokenand Warner Bros Discovery (NASDAQ:WBD) is moving forward with one of the boldest corporate shake-ups in recent memory. Up to 99% of certain creditor groups gave the green light to a deal that would split the company in two: one unit housing its HBO Max and studio assets, and another stuck with its fading cable networks. The plan also includes a buyback of nearly half the company’s $37 billion in debt tied to the 2022 WarnerMedia-Discovery merger. By clearing restrictive covenants, WBD now has more room to maneuverbut that flexibility could come at a cost for some debt holders.
Not everyone’s thrilled. Investors tied to the legacy cable business may end up holding the short straw: unsecured bonds without collateral backing, and lower priority in a potential default scenario. Legal efforts to negotiate better protections fell flat, leaving these creditors exposed just as the cable unit faces long-term structural headwinds. The deal might unlock strategic potential for streaming, but the debt allocation could deepen the divide between the have and have-not sides of the balance sheet.
To make matters trickier, all three major ratings agenciesS&P, Moody’s, and Fitchhave now downgraded Warner Bros Discovery to junk. That triggered forced selling from funds that are only allowed to hold investment-grade paper, according to a source familiar with the matter. As the dust settles, the market’s next move hinges on whether Warner’s streamlined structure can revive growthor whether the debt-heavy cable division drags down the entire story. Either way, the bond market just got a lot more interesting.
This article first appeared on GuruFocus.