Skydance Bonds Extend Losses Amid Warner Bros. Buyout Angst

(Bloomberg) -- Skydance Corp. bonds weakened further on Tuesday, and the cost of protecting the company's debt against default jumped, as investors fretted about the profitability of the company after its $110 billion acquisition of Warner Bros. Discovery Inc.

The company's 9.125% junk bonds due 2036 dropped about 2.5 cents on the dollar to 91 cents on Tuesday, according to Trace. The notes were sold at 100 cents on the dollar on Sept. 30.

Skydance's debt prices have broadly been weakening since the company sold debt in late September to help fund the acquisition. The selloff in the company's high-grade bonds resulted in new debt trailing the broader market by the most since the depths of the Covid-19 pandemic, according to a JPMorgan Chase & Co. note on Tuesday. The note looked at 10 day performance of new issues compared with the bank's investment-grade corporate bond index.

On Tuesday, Skydance's investment-grade bonds with a 7.55% coupon, due in 2033, saw their risk premiums climb to 2.95 percentage points on Tuesday, up from 2.87 percentage points on Friday. The bonds were originally sold at the end of September at a spread of 2.375 percentage points.

In the derivatives market, the price of protecting company debt for five years climbed to 5.728 percentage points, up from 5.132 percentage points on Friday.

Skydance Corp. closed its buyout of Warner Bros. Discovery on Oct. 6, marking one of the biggest media acquisitions of all time.

A representative for Skydance wasn't immediately available for comment.

(Updates with detail on JPMorgan analysis in third paragraph. A previous version of the story corrected CDS price in penultimate paragraph.)