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Warner Bros Discovery (NASDAQ:WBD) shares surged 4.89% to $10.52 on Monday following news that bondholders overwhelmingly approved the company’s plan to split into two separate publicly traded entertainment companies.
The approval removes critical restrictions that could have prevented the media giant from proceeding with its ambitious restructuring plan. The decision represents a pivotal moment for the company as it seeks to separate its profitable studios and HBO Max streaming service from its declining cable networks business.
WBD Bondholders Clear Path for Historic Split
Warner Bros Discovery received overwhelming support from bondholders for its plan to cleave the company into two distinct entities, with up to 99% of certain bondholder groups voting in favor of the proposal. The approval was crucial as it removed debt covenant restrictions that could have blocked the company’s restructuring efforts. Credit investors also supported the company’s plan to buy back nearly half of its $37 billion debt load, which resulted from the 2022 merger of WarnerMedia and Discovery.
The complex deal structure will leave the legacy cable business and its bondholders holding the majority of the company’s debt burden, while the streaming and studio operations will emerge with significantly less financial leverage.
This strategic separation aims to provide the entertainment divisions with greater flexibility to compete against streaming rivals like Netflix (NASDAQ:NFLX) and Disney (NYSE:DIS).
However, the arrangement has raised concerns among some bondholders who worry about being left with unsecured bonds tied to the declining cable television market, potentially leaving them without collateral protection in the event of financial distress.
Warner Bros Discovery Shares Continue to Climb Despite Downgrades
Warner Bros Discovery shares closed at $10.52, marking a significant 4.89% gain on the day and reflecting investor enthusiasm for the approved restructuring plan.
The stock opened at $10.14 and reached intraday highs above $10.60 during active trading, with volume reaching over 15.5 million shares compared to its average of 44.2 million. The company’s market capitalization stands at approximately $26.04 billion, though it continues to trade at distressed valuations with a price-to-sales ratio of just 0.64.
Despite the day’s gains, Warner Bros Discovery stock remains under pressure from broader market headwinds and industry challenges. The company’s shares have declined 0.43% year-to-date, though they’ve posted a remarkable 45.37% gain over the past twelve months, significantly outperforming the S&P 500’s 11.16% return over the same period.
Credit rating agencies Fitch and Moody’s recently downgraded the company to junk status, joining S&P Global Ratings in expressing concerns about the challenges facing traditional cable networks, which triggered forced selling by investment-grade funds and added pressure to the company’s bond prices.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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