Skydance New Bonds Underperform Investment Grade by 27bps, Worst in Six and a Half Years
nashnova research
Skydance's (SKYD.US) investment-grade bonds issued September 30 underperformed JPMorgan's IG index by 27 basis points in ten days — the widest gap since the worst of the Covid pandemic, signaling that the market is pricing the credit behind this $110 billion media mega-merger far more cautiously than the deal's launch suggested.
How rare is a 27bp underperformance?
Skydance's new high-grade bonds underperformed JPMorgan's investment-grade index by 27bp through October 8 — the worst ten-day showing since April 2020, the peak of the Covid crisis.
This means → you have to go back to a period when credit markets were near-frozen to find a worse debut for new IG paper.
JPMorgan strategist Nathaniel Rosenbaum's team added a striking comparison: in April 2020, the average IG spread was 2.7 times today's level. In plain terms = back then the whole market was panicking; today spreads are tight and conditions look calm, yet Skydance still posted a worse relative result.
How did one bond drag down the entire new-issue market?
JPMorgan's data shows that excluding Skydance, new bonds actually outperformed the index by about 4bp over the same period.
In plain terms = last week's overall new-issue weakness was caused almost entirely by one name — Skydance.
The strategists believe the selloff also suppressed issuance volume — despite strong fund inflows and falling rate volatility, actual supply came in well below dealer forecasts. This reflects how a single large-deal stumble can chill the broader market's willingness to price new paper.
What was all this money for?
In early October, Paramount and Skydance completed their $110 billion acquisition of Warner Bros. Discovery. The combined entity was renamed Skydance.
To fund the deal, the company priced roughly $52 billion in bonds and loans within a single week: $30 billion in investment-grade bonds, about $12.4 billion in high-yield bonds, and $9.46 billion in loans.
The transaction brings *Mission: Impossible*, *Harry Potter*, DC Studios, CBS, CNN, Paramount+, and HBO Max under one roof. In plain terms = two legacy Hollywood studios plus a bundle of streaming platforms, packaged into a single new company.
What does pricier funding mean for Skydance?
JPMorgan's strategists characterized Skydance's performance as "consistent with a broader pattern this year of increasingly unpredictable new-issue outcomes."
This means → even with IG spreads historically tight, investors cannot assume new paper will outperform — they need to assess underperformance risk "more carefully than in the past."
CEO David Ellison chose to preserve Paramount's and Warner Bros.' separate brand identities rather than merging them. But the higher funding cost has already raised the operating bar for the combined company — the secondary-market trajectory of these bonds will be an early signal of how the market judges Skydance's credit quality.
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