Warner Bros. Discovery’s (WBD) Bondholders Agree to Split the Company in Two

Media giant Warner Bros. Discovery (WBD) announced that its bondholders have overwhelmingly approved a restructuring plan that will allow the company to split into two publicly traded entities. The plan involves separating its studios and HBO Max streaming division from its declining cable networks. As part of the deal, bondholders agreed to remove restrictions that could have blocked the split and supported a plan to repurchase nearly half of the $37 billion in debt left over from the 2022 WarnerMedia-Discovery merger.

Under the new structure, most of the remaining debt will be tied to the cable business, while the more financially flexible streaming and studio side will take on less debt to better compete in the market. However, this uneven split created concerns among some bondholders, who feared that they would be left with unsecured bonds tied to the weaker cable division. Indeed, these unsecured bonds lack collateral and would rank lower in repayment priority if the cable business were to go bankrupt.

Nevertheless, despite pushback from a law firm that tried to rally bondholders for better terms, the consent solicitation won support from up to 99% of certain bondholder groups. As a result, bondholders have until June 23 to tender their bonds. Interestingly, though, the move comes after credit rating agencies downgraded Warner Bros. Discovery’s debt to junk status. These downgrades triggered mandatory selling by funds that can only hold investment-grade debt, which led to a sell-off of the company’s bonds.

Is WBD Stock a Good Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on WBD stock based on 10 Buys, eight Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average WBD price target of $12.50 per share implies 24.6% upside potential.

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