Warner Bros Discovery (NASDAQ:WBD) announced Monday that its bondholders have largely approved a strategic plan to split the company and implement a revised capital structure tied to the proposed separation.
The approved measures clear the way for the entertainment giant to divide itself into two distinct publicly traded entities. The separation would isolate its content-producing assets, including the Warner Bros. studios and the HBO Max streaming platform, from its traditional — and waning — cable TV operations.
As part of the plan, credit investors endorsed the company’s proposal to repurchase nearly 50% of its existing $37 billion debt, much of which stems from the 2022 merger between WarnerMedia and Discovery. The bondholders had until Friday to vote on amendments to debt covenants that would enable the division. Under the new structure, the cable segment would retain a significant portion of the debt, while the streaming and studio division would operate with more financial flexibility to compete in the evolving media landscape.
However, the complexity of the split raised concerns among some bondholders, particularly those tied to the declining cable business. These investors feared being left with unsecured bonds, which lack collateral backing and rank lower in repayment priority should the business face bankruptcy.
Efforts by law firm Akin Gump Strauss Hauer & Feld to organize a group of bondholders in pursuit of improved terms were reportedly unsuccessful.
Despite the concerns, Warner Bros Discovery reported that the majority of bondholders supported the proposal, with certain bond classes receiving approval rates as high as 99%. Investors have until June 23 to formally tender their bonds.
Meanwhile, credit ratings agencies have taken a dim view of the company’s financial outlook. Both Fitch and Moody’s downgraded Warner Bros Discovery to junk status last week, following a similar move by S&P Global Ratings earlier in the month. Analysts cited mounting challenges faced by its legacy cable networks as a major factor behind the downgrades.
These ratings cuts prompted forced divestment from funds restricted to investment-grade assets, according to a source familiar with the matter, leading to a wave of selling across the company’s bond market.