Breaking Down Paramount’s Finances: Not Going Bankrupt But Balance Sheet Could Be Better

Numbers matter, especially financials. Some in the media are reporting that Paramount (NASDAQ:PARA) doesn’t have enough cash and will go bankrupt next year, neglecting to mention the cash Paramount will get from the Simon & Schuster sale and Paramount’s revolving line of credit. Could Paramount’s balance sheet be a lot better? Absolutely. They have a total of $15 billion of net debt. But they are not on the “verge” of going bankrupt. These are the facts:

• Paramount had $1.8 billion of cash as of September 30
• For the period ending Sept. 30, Paramount reported a profit of $295 million, up from $231 million, a year earlier
• Paramount generated $377 million in free cash flow during the third quarter and anticipates strong free cash flow in the fourth quarter as the strike continues to limit the production of content
• In Q4, the company will receive $3 billion (on a pro forma basis) from the sale of Simon & Schuster and expects the transaction to yield approximately $1.3 billion in net proceeds
• Paramount’s CFO said he expects the combination of integrating Showtime into Paramount+ to exceed the previously forecasted $700 million of future expense savings
• The company is expected to see the full ARPU benefit of the recent price increase in the fourth quarter
• During the first quarter of 2023, the company amended and extended its $3.5 billion revolving credit facility, which now matures in January 2027
• In 2024, the company faces a ~$555M debt maturity (total of $15 billion of net debt)

S&P Global analyst Naveen Sarma said Paramount doesn’t have “the cash on the balance sheet to be able to make that payment,” about the $2 billion that Paramount owes the NFL for media rights in 2024. They will have the cash in 2024 when needed, and the payment for the NFL is spaced out over multiple payments during the year, it is not one lump sum. There are rumors that the company has discussed laying off more than 1,000 workers early next year, which would also save the company additional money.

It’s safe to say that Paramount will get sold. That’s going to happen at some point. Maybe not all to one buyer, and it would make sense for the assets to be broken up. Paramount won’t be a standalone company in the next few years. But if you are a buyer, there is no reason to buy it now and there is no urgency for the buyer. Any sale would face a long regulatory review unless Paramount’s financials truly get distressed, at which point the regulatory rules are relaxed and a deal could go through faster. To suggest the company will go bankrupt next year is to ignore the numbers and facts around their financials.

There are some interesting things taking place with their bonds, which have seen higher prices and strong volume in recent weeks, amid reports that Chairwoman Shari Redstone is in talks on selling a controlling stake in the company. Holders of the bonds could make out well if there’s a change of control and the credit is downgraded, thanks to a special provision in their terms.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.