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Warner Bros Discovery bondholders approved a debt structuring that underpins a break-up of the media titan, handing a rare win to the company’s chief executive, David Zaslav.
The complex deal, announced last week, called for compromise between WBD and its creditors in which the company agreed to buy back more than $14bn of the group’s $36bn of bonds at a slight premium to current market prices, but below 100 cents on the dollar in some instances.
In exchange, participating bondholders consented to relax existing restrictions on selling new debt and agreed to refrain from demanding immediate repayment if the companies are ever sold in the future.
Results released by WBD on Monday showed that the vast majority of bondholders agreed to give their consent to changes WBD requested on the contractual terms of the debt.
The debt restructuring terms were announced on June 9 in conjunction with WBD’s plan to separate its streaming and studio businesses, such as HBO, from its cable television networks, including CNN and Turner.
The company set a deadline of 5pm New York time last Friday for bondholders to comply. That was less than a week after announcing the complex buyback, which it said was to give the two new companies more operational flexibility when the split is finalised in 2026.
Jamie Newton, head of global fixed income research at Allspring Global Investments, which owns some of the company’s debt, said it was “understandable” WBD tried to push the deal through quickly. “But as a bondholder, that doesn’t mean you have to love it,” he said.
WBD has been plagued by a heavy debt load that has helped send its shares down more than 60 per cent since the merger of Time Warner and Discovery closed three years ago. Its market capitalisation now stands at $25bn, though its debt burden is about one-third lower than the $55bn load it carried when the deal closed in 2022.
The company — which had long been rated investment grade until recent downgrades by S&P Global Ratings, Moody’s and Fitch Ratings — had relatively few restrictions, known as covenants, in its debt contracts. Credit market experts had wondered how aggressive WBD would be in the debt buyback and the terms of the so-called consent solicitation that changed the legal contract of the remaining bonds.
Analysts at CreditSights research service last week described the WBD terms as “aggressive” and “more akin to actions taken by deeply distressed companies trying to avoid bankruptcy, not investment grade credits maximising shareholder value”.
WBD’s debt gambit was structured to land favourably with both bondholders and equity investors, chief financial officer Gunnar Wiedenfels said on a call with analysts last week about the plan to complete the split by the middle of 2026.
“I have full conviction that this is going to go over very well with bondholders,” Wiedenfels said. “It’s a very fair offer. It’s also good for our shareholders.”
WBD offered some so-called consent fees to induce bondholders to tender their debt and agree to looser covenants on the debt that is left outstanding. Overall, WBD is expected to knock more than $2bn off its existing principal balance with some of its low-coupon bond issues being repurchased for less than 80 cents on the dollar. Some of the existing debt has maturities extending to the 2050s.
The company announced that JPMorgan would provide a $17bn bridge loan to facilitate the tender offer for the portion of the outstanding bonds, which then will be refinanced into longer-term debt. That new debt is expected to be ranked senior in repayment priority to the existing WBD bonds and has left some existing bondholders worried about their chances for repayment, especially when much of the group debt will reside at the slowly decaying network TV business.
Still, others believed that Zaslav proved reasonable in his dealings with creditors. Barclays analysts said WBD could have waited to engage in debt negotiations later down the road after bond prices had fallen further. Instead, the company packaged the split-up with the bond restructuring.
“We view the decision to offer an upfront tender as an olive branch to lenders and a much better outcome than the alternative,” Barclays wrote.