WBD 4.279 03/15/2032 & WBD 5.141 03/15/2052

Warner Bros Discovery Inc

Credit, TMT


Publicly traded companies mentioned herein: AT&T Inc (T), Charter Communications Inc (CHTR), Comcast Corp (CMCSA), Warner Bros Discovery Inc (WBD)

Highlights

The presenter is short Warner Bros Discovery Inc (WBD)’s 2032 4.279% and 2052 5.141% bonds, believing that all three of the company’s operating segments (DTC, Networks, Studios) are impaired. WBD was formed in 2022 when AT&T spun off WarnerMedia and merged the business with Discovery via a Reverse Morris Trust (RMT). At the time of the deal, the company was guiding to 2023 EBITDA of $14B, and WBD’s struggles are evident when comparing that outlook to the consensus 2024 EBITDA of $9.1B and the presenter’s $8B expectation. The stock has fallen from the $26 deal price to the current $7 per share, but the bonds have maintained an investment grade and trade at similar spreads as the initial 2022 levels. He expects continued financial degradation, modeling 2026 EBITDA sub-$6B, which implies 8x leverage (including OBS debt), and he thinks the company is worth 3x – 4x EBITDA as opposed to the current ~10x on his sub-$6B EBITDA. As this story plays out and FCF deteriorates, there is a strong chance that WBD becomes distressed, creating meaningful downside to the 2032 and 2052 bonds.

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