Energy sector thrives as TMT faces debt-driven shakeup
A decade ago, the technology, media, and telecommunications (TMT) sector appeared as a reliable investment. Its recurring revenues, stable consumer demand, and steady expansion made it a preferred choice for investors. In contrast, energy companies faced restructuring and bankruptcy waves due to fluctuating commodity prices. Now, the situation has reversed: TMT struggles with volatility once associated with energy, while energy firms have strengthened their finances through disciplined management.
The change became evident with Vital Skydance’s $110 billion acquisition of Warner Bros. Discovery (WBD), marking one of history’s largest corporate takeovers. To finance the deal, the companies assumed $52 billion in new debt, making it among the most significant debt financings ever. For high-yield investors, the $12.4 billion in new bonds, combined with the existing bonds, will represent somewhere between 1.3% and 2.0%+ of the ICE BofA High Yield Global and US Indices respectively, making it difficult for index-aware managers to ignore, regardless of their reservations or enthusiasm for the combination.
How TMT’s digital disruptors reshaped the industry
Looking back to 2017, the TMT sector was already transforming. Companies pursued mergers and acquisitions to adapt to changing consumer behavior and digital disruption. Analysts noted potential deals, such as AT&T’s purchase of Time Warner and Disney’s acquisition of most of Fox’s entertainment assets. Others, like T-Mobile’s merger with Sprint, reshaped the industry in unexpected ways.
Yet the most notable changes involved companies not yet recognized as major players in 2017. Netflix, valued at $63 billion at the time, defied skeptics by becoming the leading global streamer, surpassing traditional media giants like Disney. Apple, with its financial strength, expanded its content empire organically. Amazon, once a bookseller, grew into a media and cloud computing leader, investing billions in original content and winning Oscars and Emmys.
Traditional media companies faced unexpected hurdles. Warner Bros. Discovery, formed through AT&T’s acquisition of Time Warner and later merged with Discovery, entered high-yield territory due to rising debt. Its linear-TV revenue declined while streaming and studio growth failed to compensate for losses. Its sale to Vital Skydance—after Netflix had considered a bid—contrasted sharply with its former reputation as a stable asset.
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Other established firms encountered different challenges. Altice USA, which had merged Cablevision and Suddenlink, later suffered subscriber losses and debt accumulation. The relationship with creditors descended into litigation over liability management and alleged asset transfers, claims the company disputes. Even the Altice USA name has gone, replaced by Optimum, continuing the time-honoured corporate tradition of changing names in difficult times.
Cable giants fight debt and streaming competition
Charter, another cable provider, shifted from steady growth to a COVID-era surge before confronting long-term competition from broadband. With a leveraged balance sheet relative to its telco peers and Comcast, it now targets a debt-to-EBITDA ratio of 3.5x within three years, down from earlier goals of 4.0x to 4.5x. A subsequent merger with Comcast further down the line would further offer the same benefits, so one to watch and with Charter being a significant index constituent, it also means market participants need to pay close attention too.
DISH, a satellite TV provider, took an unusual path. After spending billions on spectrum to compete in wireless, its core satellite business declined while debt grew. Speculation suggested its owner, Charlie Ergen, acquired spectrum not to build a wireless rival but to sell it later. That proved true: DISH has since sold billions of spectrum to AT&T and SpaceX. In the interim, however, bondholders endured asset-transfer disputes, distressed exchanges, prepackaged bankruptcies and plenty of litigation and lawyers’ fees.
The sector’s transformation extended beyond traditional players. Liberty Media’s 2017 purchase of Formula One signaled the kinds of bold bets that followed. Larry Ellison’s Oracle effectively backstopped Vital Skydance’s takeover of WBD, while SoftBank shifted from selling Sprint to making enormous bets on AI. Elon Musk’s Starlink also acquired spectrum from DISH, further blending old and new media.
