Paramount's $30 Billion Bond Sale Prices Into a 5.3% Treasury World

Paramount Skydance Corp. priced $5.25 billion of 10-year investment-grade bonds at a spread of 262.5 basis points above the benchmark Treasury rate on Wednesday, according to Bloomberg — the centerpiece of a mega $30 billion bond-financing package backing its buyout of Warner Bros. Discovery Inc.

With the 10-year Treasury yield at 5.3% the same day, that equates to a coupon of roughly 7.925% for the media company. The spread alone — 2.625 percentage points — signals how much more expensive debt has become across corporate America as a powerful selloff in long-dated Treasurys pushes benchmark yields to their highest levels since 2002.

The deal, which funds the historic $110 billion Hollywood tie-up between Paramount and Warner Bros. Discovery, crossed the finish line despite growing bond-market tumult and surging borrowing costs. Higher yields now hit families, businesses and the U.S. government alike. For comparison, new 30-year fixed mortgages carry a roughly 7.5% rate, according to Mortgage News Daily — a level that has kept the housing market largely on ice.

Several forces are driving the bond selloff. Higher oil prices as the Iran war enters an eighth month have played a role, mainly because investors want to get paid more to offset inflation risks. Brent crude futures for November delivery rose 0.9% to settle at $103.53 on Wednesday and have soared 42% during the third quarter, according to Dow Jones Market Data.

The Paramount deal itself appeared to be a factor in pushing long-dated yields higher on Wednesday. The 10-year yield rose 5 basis points in afternoon trading.

"I think the Paramount deal is definitely front and center," said Tom di Galoma, a managing director at Mischler Financial Group. He also pointed to selling pressure out of Europe and concerns about the price of oil over the next few weeks, as diplomatic talks between the U.S. and Iran appear to have stalled.

One notable shift in the final structure: Paramount's financing of the Warner Bros. acquisition ended up including more "junk"-rated bonds and loans than initially expected, and a smaller reliance on investment-grade bonds. That trade-off matters. Selling junk bonds with below-investment-grade ratings typically ends up being more expensive, but the investment-grade market offers less flexibility in terms of retiring the debt early.

Keeping the option to repay expensive debt early is one way large companies are adapting to today's more expensive borrowing backdrop. Another is to wait, and hope, for yields to fall before issuing new debt.

"Over the near term, we expect supply to fall off, unless someone has to borrow," said Matt Brill, head of North America investment-grade credit at Invesco, of new high-grade bond issuance. He identified two segments that likely can't wait too long: planned M&A deals and continued issuance from the artificial-intelligence "hyperscalers."

For now, most companies want to issue only on the front end of the Treasury yield curve — notes with shorter maturities — "because the pricing is so punitive" to borrow for longer periods, Brill said.

"I think everyone is sharpening their pencils and wondering what is the impact of this going to be," Brill said of the spike in yields since August. "It's happened so fast. I don't know that anyone knows."

Warner Bros. declined to comment. Paramount didn't respond to a request for comment.

If yields stay near two-decade highs, the Paramount playbook — paying nearly 8% for 10-year money and leaning on junk-rated debt for flexibility — may become the template for any acquirer that cannot afford to wait.