What the Past Gets Wrong About the Future

US TMT has shifted from a seemingly dependable high-yield sector into a source of credit risk, illustrating how poorly past consensus forecasts capture structural change.

• Paramount Skydance’s $110 billion acquisition of Warner Bros. Discovery requires $52 billion of new debt financing, including $12.4 billion of new bonds that could represent 1.3% to more than 2.0% of global and US ICE BofA high-yield indices.
• The 2017 TMT consolidation scenarios correctly anticipated some deals, including AT&T’s purchase of Time Warner, Disney’s acquisition of most of Fox’s entertainment assets, CenturyLink’s purchase of Level 3 and T-Mobile’s merger with Sprint, but missed the later dominance of Netflix, Apple and Amazon in media and streaming.
• Warner Bros. Discovery fell into high yield as leverage remained elevated and linear-TV declines outweighed streaming and studio growth; Paramount ultimately had to outbid Netflix for the company.
• Altice USA deteriorated from an active consolidator after combining Cablevision and Suddenlink into a highly levered company facing subscriber losses, litigation and disputed asset transfers.
• Charter’s $34 billion acquisition of Cox Communications is viewed as a consolidation opportunity, but pro forma leverage in the low 4x range contrasts with the roughly 10x enterprise-value multiple at which Charter traded in 2021; DISH meanwhile accumulated spectrum while its satellite-TV business declined and later sold spectrum to AT&T and Starlink.
• The authors contrast this with US energy, which moved from high yield’s problem sector a decade ago to stronger balance sheets after lower production costs and years of constrained leveraged growth.

Takeaway: Investors should treat sector leadership and apparently stable business models as cyclical rather than permanent, using changing leverage, technology and consumer behaviour to identify future credit deterioration or improvement.