By Dawn Chmielewski and Matt Tracy
(Reuters) -Warner Bros Discovery (WBD) bondholders overwhelmingly approved a plan to split the corporation and put in place a new capital structure related to the deal, the company said Monday.
Bondholders voted to remove restrictions that could have prevented the company from carrying out its plan to cleave itself into two publicly traded entertainment companies, separating its studios and HBO Max streaming service from its fading cable networks.
Credit investors also supported the company’s plan to buy back nearly half of its $37 billion in debt resulting from the 2022 merger of WarnerMedia and Discovery.
The bondholders had until Friday to approve changes to debt covenants that would leave the legacy cable business – and its bondholders – holding the lion’s share of debt. The less indebted streaming and studio business, meanwhile, would have flexibility to better compete with rivals.
But the details of the split, which analysts told Reuters were highly complex, left certain bondholders concerned they could be left empty-handed. They said it would leave some holding unsecured bonds tied to the declining cable business, meaning they would lack collateral protection and come second in priority of payment to the secured bondholders in the event of bankruptcy.
The law firm Aiken Gump Strauss Hauer & Field failed in its effort last week to organize bondholders to negotiate better terms, according to published reports.
Warner Bros Discovery said the consent solicitation received support from the majority of all bondholders, with up to 99% of certain groups voting their support. Credit investors have until June 23 to tender their bonds.
Credit ratings agencies Fitch and Moody’s downgraded Warner Bros Discovery to junk status last week, even as investors weighed the deal’s likely impact on holders of its debt. S&P Global Ratings had downgraded Warner debt to junk status earlier this month, citing the challenges confronting its cable networks.
The rating downgrades triggered forced selling by funds with investment-grade portfolio mandates, according to a person familiar with the matter. This in turn resulted in net selling of the company’s bonds, the person familiar added.
(Reporting by Dawn Chmielewski in Los Angeles and Matt Tracy in Washington, D.C.; Editing by Kim Coghill and Christopher Cushing)
