Warner Bros. Discovery's Debt Split: A Bondholder's Tightrope Walk

Warner Bros. Discovery's (WBD) decision to split into two entities—Global Networks and Streaming & Studios—by mid-2026 is a bold move to address its $38 billion debt burden. But for bondholders, the restructuring creates a stark divide: one side bets on declining linear TV revenues, the other on streaming's uncertain growth. This article explores the risks and opportunities for investors navigating this high-stakes split.

The Debt Divide: Global Networks vs. Streaming & Studios

The split's financial architecture tilts heavily toward risk for Global Networks, which will retain $30 billion of the $38 billion debt, compared to $8 billion for Streaming & Studios. This uneven distribution stems from the legacy of WBD's 2022 merger, which loaded the company with debt while linear TV ad revenue declined. Here's the breakdown:

Global Networks: The Debt Anchor

• Debt-to-EBITDA Ratio: Over 6x, far exceeding the 3.5x threshold for investment-grade ratings.
• Earnings Pressure: Linear TV ad revenue fell 11% YoY in Q1 2025, with further declines expected as cord-cutting accelerates.
• Liquidity Risks: Management plans to shed $5–10 billion via asset sales (e.g., regional sports networks) and cost cuts, but execution delays could strain cash flows.

Streaming & Studios: The Growth Gambit

• Subscriber Growth: 23% YoY to 122.3 million, with a 2026 target of 150 million.
• EBITDA Targets: $1.3 billion in 2025, rising to $3 billion by 2026, though margins are pressured by ad-supported tiers and rising content costs.
• Debt Dynamics: A 20% equity stake in Global Networks could be monetized tax-efficiently, but its value hinges on Global's financial health.

Bondholder Risk Exposure: A Tale of Two Markets

The credit ratings of both entities have been downgraded to junk status (BB+ to BB- by S&P and Fitch), reflecting heightened default risks. Bondholders must choose between two distinct risk profiles:

Global Networks Bonds: Yield Now, Risk Later

• Short-Term Opportunity: Bonds maturing in 2025–2026 (e.g., the June–July tender's Pool 1) offer premium yields (7–9%) amid liquidity pressures.
• Long-Term Peril: Linear TV's structural decline makes long-dated bonds (e.g., 2030 maturities) vulnerable to further downgrades or defaults. S&P warns that creditors may face “lower recovery prospects” if the division struggles.

Streaming & Studios Bonds: Growth at a Price

• Upside Potential: Long-dated bonds (e.g., Pool 4) could benefit from HBO Max's global expansion, though they require faith in content-driven subscriber growth.
• Execution Risk: Missed EBITDA targets or rising subscriber acquisition costs (already 20% higher than Netflix's) could trigger credit downgrades.

Strategic Investment Advice

1. For Bondholders:
2. Global Networks: Prioritize short-term debt for yield, but avoid long-dated bonds unless you're a high-risk investor. Monitor Q2 EBITDA updates for clues on asset-sale progress.

3. Streaming & Studios: Target long-dated bonds only if you believe WBD can meet its 2026 EBITDA target. Pair with a “wait-and-see” approach until refinancing terms for the $17.5 billion bridge loan are finalized.

4. For Equity Investors:

5. Global Networks: Look for dips in WBD's equity ahead of the split, focusing on asset-sale catalysts. The division's 20% stake in Streaming could add value if monetized.
6. Streaming & Studios: Consider buying dips during earnings cycles (e.g., post-Q2 results) if subscriber growth and ARPU stabilization materialize.

Key Risks Ahead

• Refinancing Crunch: The $17.5 billion bridge loan must be refinanced by mid-2026. Rising interest rates could inflate borrowing costs, squeezing both entities' margins.
• IRS Compliance: The spinoff's tax-free status hinges on meeting IRS rules, including a 30-day holding period for refinanced debt. Delays here could trigger taxable liabilities.
• Content Pipeline: Streaming's success depends on hits like Stranger Things and The White Lotus. A dry spell in content could derail subscriber growth.

Conclusion: A Split with No Safe Bets

Warner Bros. Discovery's restructuring is a high-wire act for investors. Global Networks' debt-heavy model offers short-term yield but long-term peril, while Streaming & Studios' growth hinges on execution against aggressive targets. For now, bondholders are advised to favor near-term opportunities while avoiding overcommitment to either division's long-term bonds. Equity investors should prioritize operational milestones—like asset sales and EBITDA results—over speculation. Until WBD proves it can deleverage and grow profitably, this remains a game of calculated risks.

Invest wisely—this split isn't a silver bullet.