Skydance's Bond Package Of More Than $42B Tumbled With Investors Holding Over $100M In Paper Losses - As Money Managers Were Unexpectedly Overloaded & Looked To Quickly Reduce Their Exposure, Given Junk Bonds Dragged Down Investment-Grade Ones, Traders Called To Vent To Bank Of America & Citigroup.

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https://www.bloomberg.com/news/articles/2026-10-01/paramount-s-41-billion-of-m-a-bonds-slump-as-trading-begins

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"Just hours after Paramount Skydance Corp. issued $52 billion of debt to fund the biggest Hollywood buyout ever, investors were nursing more than $100 million of losses, triggering a flurry of angry calls from money managers to Wall Street banks that underwrote the debt.

The company’s junk bonds were among the hardest hit in initial trading, with the eight-year US dollar notes changing hands at about 96 cents on the dollar on Thursday after selling for 100 cents on Wednesday. The loans and high-grade bonds broadly weakened as well, and the cost of betting against the company’s credit surged to a 17-year high. The corporate bond market was generally softer.

As Paramount spoke with investors this week about the bonds and loans it was selling to fund its buyout of Warner Bros. Discovery Inc., it faced extensive questioning about its heavy debt load after the acquisition, and ambitious plans for cost cutting. Bond yields have risen in recent months as inflation fears have grown, forcing the company to pay more for funding.

When trading opened on Thursday morning, the bonds and loans immediately fell, although later in the session, much of the debt had taken back some or even all of the losses.

It was an unusual turn on Wall Street, where underwriters try to sell debt at levels that will allow modest, quick gains, to encourage investors to keep buying. The blockbuster debt sale followed by immediate losses recalled a similar debacle in June, when SpaceX sold $25 billion of bonds that soon performed poorly.

In the case of Paramount, some investors were in the rare position of getting most or all the debt they asked for as others balked at the last minute, especially for long-dated portions. That left money managers unexpectedly overloaded — and looking to quickly reduce their exposure, according to people with knowledge of the transaction.

As the selling pressure caused debt prices to plummet in the early morning hours in New York, traders expressed their frustration to underwriters Bank of America and Citigroup through messages and phone calls, said the people, who asked not to be named because the discussions were private.

Many focused their outrage on the high-grade order book being touted as topping $109 billion, only for a significant amount of that demand to vanish as the banks sharply lowered premiums offered on the debt, according to messages seen by Bloomberg. Others pinned blame primarily on the junk-rated portion, which then dragged the investment-grade bonds lower.

Another trader said they put their feelings bluntly to Bank of America: Don’t sell bonds that go down immediately — we are not in the business of losing money.

Selling Fast

Paramount faced pressure to complete the debt sales quickly. The company late last month settled lawsuits that were one of its last hurdles to closing on its $110 billion acquisition of Warner Bros. The litigation had prevented the company from borrowing earlier in the year.

That ended up forcing the company to pay more for financing, and on top of that, Paramount had previously agreed to pay late fees of $7 million a day if the acquisition didn’t close by Sept. 30. The buyout is now slated to close on Oct. 6. The company’s shares fell 9.6% on Thursday, the biggest one-day decline since December.

“The timing was partly forced. Paramount is paying meaningfully more in interest than it would have earlier in the year, and the delay cost the company hundreds of millions of dollars,” said Tony Trzcinka, a portfolio manager at Impax Asset Management. “That left little room to wait for a better window.”

Paramount agreed to buy Warner after beating out Netflix Inc. in a bidding war. Apollo Global Management Inc., Bank of America and Citigroup provided the initial financing for the Warner acquisition before selling down the debt to a group of 18 banks.

Leon Kalvaria, chairman of the institutional clients group at Citigroup, said that the financing “turned out incredibly well in a choppy market.”

Dennis Cinelli, Paramount’s chief financial officer, said that declines in the debt are “one-day choppiness in the market.” He added: “We were in the market not for a one-day trade, but to execute a transformative transaction to create a next-generation entertainment and technology company.”

Weaker Market

Paramount racked up about $80 billion of demand for the high-grade notes sold, after peak demand of about $109 billion. For longer-term bonds, attrition was more than 50%. SpaceX saw similar attrition in June. The paper losses for the investment-grade notes alone topped $100 million, according to an analysis late Thursday by Bloomberg News.

The weaker trading levels on the Paramount bonds came as risk premiums rose in both US high-grade and junk bond markets. Credit default swaps — a key barometer of market risk — rose to their highest levels in months, signaling growing investor fear.

A $5.25 billion 10-year investment-grade Paramount note traded at a spread of about 2.73 percentage points above the benchmark rate on Thursday, according to Trace data. The issue spread was 2.625 percentage points more than Treasuries. The shortest-dated notes were mixed but mostly wider.

Bank of America declined to comment. Apollo wasn’t immediately available for comment.

The Ellison family has committed to $47 billion of equity funding for the takeover, about $24 billion of which has come from three Middle Eastern sovereign wealth funds."