Zhitong Finance learned that S&P Global Ratings downgraded Paramount Global's (PARA.US) debt rating to “junk” because the company's broadcast and cable TV business continued to decline, putting pressure on the company's cash flow. Standard & Poor's downgraded Paramount's debt rating from BBB to BB+, according to a statement on Wednesday. As the parent company of CBS and MTV, the company was burdened with $14.6 billion in long-term debt at the end of last year.

The company's bonds fell after being downgraded. According to data from the pricing source Trace, the spread on its bonds due in 2062 and with an interest rate of 6.375% widened by 18 basis points to 499 basis points. Fitch Ratings and Moody's Ratings continue to rate the company as investment grade.

The film and television giant, controlled by the Redstone family, has been weighing potential buyers' interest in the company. The company's board chairman Shari Redstone and her representatives have considered selling her family holding company National Amusement Inc. to independent producer David Ellison. National Amusement Inc. holds shares in Paramount. Also, according to a source familiar with the matter, Apollo Global Management proposed to buy Paramount Global's Hollywood production company for about $11 billion. Meanwhile, independent media mogul Byron Allen has proposed to buy the entire company.

CreditSights analysts, led by Hunter Martin, wrote in a report that the credit rating downgrade could invalidate a change of control clause in Paramount Senior Notes, which would have triggered a 101 cent repurchase after the acquisition. They wrote that the company's lower-rated bonds still retained this option, and the impact of the downgrade event was loosely defined by these bonds.

They wrote that the cancellation of the change-of-control clause in the bonds “increased the possibility that the company would be acquired by financial buyers” because less capital was required to sell the bonds. The report said that for senior bondholders, the sale could be “disastrous” because their loan contracts are weak, which may push down repayment limits further or allow the sale of assets without the proceeds being handed over to bondholders.

S&P said in a statement that after 2025, Paramount's free cash flow is expected to remain below 10% of debt, and the company must “implement plans to drastically improve streaming losses within the next two years to mitigate further downward pressure on ratings.” The ratings company expects its traditional TV business to “stabilize” due to political commercials in the presidential election year and Paramount's broadcast of the Super Bowl in the first quarter.

Earlier this month, Paramount agreed to sell 13% of its shares in the Indian TV business to partner Reliance Industries Group for $517 million; this is the latest in a series of asset sales.