Fitch has cut its debt rating on the new Skydance citing “significant execution and integration risks” and higher leverage of a merged Paramount and Warner Bros. Discovery.

The deal formally closed Tuesday.

The downgrade Monday evening followed a similar move by S&P Global in late September. Ratings agencies and investors are fretting about leverage as the combined company enters a shifting media landscape with $80 billion in debt after one of the biggest leveraged buyouts in corporate history.

Skydance insisted in its closing announcement today that it is “built on a strong financial foundation,” enough to capitalize on growth opportunities, deliver on its commitments and drive shareholder value. It has nearly $70 billion in revenue and has targeted over $6 billion in cost savings. CEO David Ellison believes the company can — and has committed family resources if needed — reduce leverage significantly by 2028.

Skydance brass has insisted that the bulk of the anticipated cost savings would not come from layoffs but elsewhere, like unifying tech stacks in streaming and optimizing real estate assets and marketing spend.

However, Ellison and co-CEO Ynon Kreiz said in a memo to staff today that, “Integrating two companies will bring change, including difficult decisions that effect our workforce.”

Leverage is a ratio of the amount of debt a company carries compared to its assets or equity. A dramatic $42.5 billion bond sale over the past week provided critical financing for the merger. But the fresh debt will also hike the company’s annual interest expense up to $500 million more a year than initially anticipated, with interest rates on some of the notes topping 9%.

Sources familiar with the situation say Paramount hedged U.S. Treasuries, which will offset some of the additional interest expense.

Chalk up the added cost to attorneys general who sued to block the Paramount-WBD merger. They never got to trial and the settlement is widely widely viewed by the industry as a win for Paramount. But AGs led by California’s Rob Bonta did make the deal more costly, delaying the close by several months in a period of rising interest rates.

“The bond market asked for a far greater premium than [Paramount] was probably looking for. So the overall interest expense that they’re going to have to pay went up dramatically,” said Naveen Sarma, U.S. Media and Telecom Sector Lead at S&P Global Ratings. “The problem they ran into was the timing – it was here, and here’s where the economy is, and they were kind of out on a limb and had to take what they could get.”

The total $52 billion debt financing included $30 billion in U.S. dollar investment grade bonds, $11.4 billion in U.S. junk-rated bonds and $1 billion in euro-denominated junk bonds. Also in the package, an $8.5 billion U.S. dollar loan and a $1 billion euro loan. A debt sale of this magnitude in such a compressed time period is a major feat.

Fitch said its downgrade reflects materially higher leverage after the acquisition — 7.8x in fiscal 2026, falling to 6.2x in 2027 and 4.5x in 2028 — and uncertainty about the merged company’s ability to achieve its stated synergies, “which are material to its deleveraging target.”

“The combined company faces structural pressure on linear revenues, streaming competition and hit-driven content risk,” Fitch said.

It noted that the Ellison family has stated a commitment to reduce net leverage below 3.75x in fiscal 2028 and 3.0x in fiscal 2029. But “believes these targets would require incremental debt repayment through equity issuance or asset sales, in addition to synergy realization and FCF [free cash flow] generation.”

The agency said its “base case does not include equity-funded debt reduction or asset sales. Such actions would be incremental to Fitch’s analysis and could support faster deleveraging.”

The equity portion of the deal is about $47 billion in equity financing, largely backstopped by Larry Ellison. The company was at one point said to be eying Elon Musk and other high net worth individuals as potential equity investors.