Paramount (Paramount Skydance Corp.) is acquiring Warner Bros. Discovery (Warner Bros. Discovery Inc.). This week, it added $52 billion in debt, putting the market on high alert over its financial leverage pressure. At the same time, Oracle, to expand its artificial intelligence (AI) compute infrastructure, has also significantly increased its long-term debt to more than $160 billion, becoming the fifth-largest issuer in the U.S. corporate bond market. The credit link between the two companies—whose businesses are different—has emerged because they share a major shareholder, Larry Ellison. Wall Street investors are beginning to view them as related risks. The market had previously expected the Ellison family’s large assets to serve as Paramount’s ultimate financial backstop, but most of Ellison’s wealth is heavily concentrated in Oracle stock. As Oracle’s share price has fallen by more than 50% over the past year, with free cash flow turning negative, and as S&P Global has downgraded the ratings of both companies, the cost of default protection in the credit default swap market has shown synchronized trends. Institutional investors say that when assessing bond creditworthiness, investors must take a comprehensive look at the “Ellison exposure” spanning the two companies.
Paramount's massive financing drives leverage higher, and the Allison family's equity commitments come under scrutiny
After a long wait, Paramount has finally completed the financing structure for its acquisition of Warner Bros. Discovery. The total deal includes $30 billion in investment-grade bonds, $12.4 billion in high-yield bonds, and $9.46 billion in loans. To move the merger forward smoothly, Oracle founder Larry Ellison provided a guarantee for the transaction through a family trust, securing much of the equity financing of roughly $47 billion. He also pledged to the credit rating agencies that the necessary steps would be taken to help the new company reduce leverage in the coming years. Because S&P has downgraded Paramount’s issuer credit rating to junk status—BB—bond investors are highly dependent on whether the Allison family can meet its capital-raise or debt-servicing commitments if operations are disrupted.
Oracle expands AI compute capacity; debt doubles and credit ratings come under pressure
Oracle, in its transition to becoming a provider of AI computing resources, has seen its long-term debt double over the past two years to more than $160 billion. The large scale of capital expenditures has pushed free cash flow deeply into negative territory, and in July S&P downgraded Oracle to the lowest edge of investment grade—BBB-. Even as its cloud computing business continues to grow, the expansion funded by heavy new borrowing has sparked market concerns about its cash flow, causing Oracle’s stock price to retreat by more than 50% over the past year. This has cut the book value of co-founder and chairman Larry Ellison’s net worth by nearly $200 billion to around $192 billion.
Credit default swap trends converge; the market prices Allison’s joint risk
According to Bloomberg, in the derivatives market, the spread between the cost of credit default swaps (CDS) for Paramount and Oracle has gradually narrowed, showing a high degree of synchronized correlation. This suggests that fixed-income investors are treating the two as a single credit entity pulling on each other. Because Ellison holds about 40% of Oracle’s equity and has expanded the pledge of his personal shares to raise financing, if Oracle’s stock price remains under pressure, its ability to support Paramount will be tested. Investment firms believe that this funding linkage could cause weaker Paramount debt to share in stronger Oracle credit resources, leaving creditors on both sides exposed to cross-asset execution risk.
Could this article’s takeaway be that a media giant may drag down the AI industry? Oracle’s credit risk is highly tied to Paramount; first appeared on .