(Bloomberg) -- Moody’s Ratings has downgraded debt issued by units of Warner Bros. Discovery Inc., adding another complication to the media giant’s discussions with bondholders after it announced plans to split in two.
The credit rating company has downgraded the backed senior unsecured notes of Discovery Communications and WarnerMedia Holdings to Ba1 from Baa3, meaning the notes no longer qualify as investment grade. It also placed these ratings on review for downgrade.
The cut came after Warner Bros. Discovery said it would split into two independent companies, unshackling its fast-growing streaming business from the struggling legacy media channels. Moody’s rating action followed a similar move earlier this week by S&P Global Ratings, which cut Warner Bros. Discovery’s bonds deeper into junk territory.
The downgrade reflects Warner Bros. Discovery’s “persistent operating challenges and a change in its financial policies to include secured debt in its capital structure pre and post separation,” wrote Moody’s in a June 10 statement.
The company plans to refinance more than $14 billion of unsecured notes as part of the breakup, using $17.5 billion of secured bridge financing. That effectively puts new creditors ahead of unsecured noteholders.
The buyback plan has forced investors to make some difficult choices, since investors who sell back their notes must agree to give up some safeguards on other bonds they hold.