DBRS Confirms Liberty Media LLC at BBB (low), Stable Trend

DBRS has today confirmed the long-term Senior Debt rating of Liberty Media Corporation’s wholly owned subsidiary, Liberty Media LLC (Liberty, or the Company) at BBB (low). The trend is Stable. Liberty’s rating remains underpinned by its investment portfolio of high-quality, liquid securities, the market value of which exceeds Liberty’s debt levels by just over 3.0 times. Additionally, Liberty’s overall credit profile is supported by its principal operating subsidiaries, QVC, Inc. (QVC) and Starz Entertainment Group, both of which continue to generate stable cash flows that aid in servicing the Company’s financing and operating costs.

The Company continues to address key challenges, including its ability to execute on converting its “passive” investments into more meaningful “active” investments where it can gain more control over cash flow. This is evidenced by recent transactions, including Liberty’s acquisition of the Atlanta Braves through the exchange of its TW shares with Time Warner Inc., and pending the close of its share exchange with News Corporation for a nearly 40% stake in DIRECTV. Additionally, other opportunities to convert additional investments into operating companies remain, including the potential for attractive opportunities arising following the split of IAC/InterActiveCorp (IAC), where Liberty currently maintains a 24% equity interest (Liberty’s 58% voting interest in IAC is currently controlled by Barry Diller).

Operationally, QVC, which generates roughly 80% and 90% of the Company’s consolidated revenue and EBITDA, respectively, continues to generate good revenue growth, as a result of a 2.5% increase in unit sales and favorable foreign exchange rates. However, EBITDA has been impacted by a lower gross margin due to increased costs, and overall results have been pressured domestically due to a weakening U.S. economy, and internationally due to a shift in brands and product mix in both Germany and Japan. While DBRS expects these trends to continue through the remainder of the year, they are not expected to have a material adverse impact on the Company’s cash flow from operations.

DBRS expects Liberty to continue to deploy free cash flow (expected to exceed $800 million in 2007) for share repurchases and investments. Following the increased share repurchase authorization by $1 billion in October 2007 for Liberty Interactive, and including amounts authorized and remaining for Liberty Capital, Liberty has roughly $2 billion available in aggregate under its share repurchase programs. However, the recent approval by shareholders of the recapitalization of the Liberty Capital tracking stock into two additional tracking securities, although ratings-neutral, could allow for a more appropriate equity valuation, which in turn could reduce its share repurchases, allowing capital to be deployed for additional investments.

DBRS notes potential ratings improvement could occur over the longer term, should the Company continue to effectively execute on converting its passive investment portfolio and transition itself into a substantial operating company. However, Liberty has a history of levering its “non-core” active investments, which will likely mitigate any overall ratings improvement in the near term.

Note:
All figures are in U.S. dollars unless otherwise noted.