Paramount debt downgrade could be M&A positive, says Wells Fargo

Wells Fargo says that S&P’s downgrade of Paramount debt voids change of control provisions. This makes an acquisition easier, the firm argues, adding that this negative could be a positive. Wells believes that most of Paramount’s debt instruments have language that means if one rating agency moves to high-yield, or junk status, which S&P has just done, then it negates change of control provisions. This means if anyone makes a bid for Paramount they will not need to repay and reissue the debt, which substantially reduces the risk for potential acquirers, Wells adds. The firm thinks any party interested in all or pieces of Paramount, including studios, intellectual property, CBS and real estate, are more likely to emerge now that the debt change of control is void. Wells has an Equal Weight rating on Paramount’s shares with a price target of $15.