Core Viewpoint - Warner Bros. Discovery has been downgraded to junk status by S&P Global Ratings, reflecting significant financial challenges and increased default risk [1][2] Group 1: Credit Rating and Financial Health - S&P downgraded Warner Bros. Discovery's issuer credit rating to "BB+", one notch below the lowest investment-grade rating of "BBB-" [1] - The downgrade is primarily due to declining revenues and cash flows from traditional linear television, with projected leverage rising to 4.3 times by the end of 2025, exceeding the investment-grade threshold of 3.5 times [2] - The company currently has approximately $38 billion in outstanding debt, with about $31 billion included in the Bloomberg U.S. Corporate High Yield Index [2] Group 2: Market Perception and Investor Sentiment - Despite the downgrade by S&P, Moody's and Fitch maintain higher ratings for the company at Baa3 and BBB- respectively, which may still attract some investors [2][4] - Investor sentiment is expected to become more cautious regarding the company's bonds, especially if revenue and cash flow continue to decline [2][3] Group 3: Operational Challenges - Warner Bros. Discovery faces ongoing operational challenges, including a decline in traditional linear TV advertising and subscription users, high merger-related debt, content impairment, and rising costs associated with streaming transformation [4] - The company has struggled to reduce debt and improve leverage ratios to meet investment-grade standards, with analysts noting that the company's bonds still have higher option-adjusted spreads compared to other high-yield rated issuers [3]