DBRS Places Liberty Media LLC’s Ratings Under Review with Negative Implications

DBRS has today placed its BBB (low) ratings of the Senior Debt of Liberty Media LLC (Liberty), a wholly owned subsidiary of Liberty Media Corporation (Liberty Media), Under Review with Negative Implications following Liberty Media’s recent announcement that its board of directors has authorized its management to proceed with developing a plan to (1) convert the tracking stock of Liberty Entertainment into shares of an operating entity that holds the shares and operations of Liberty Entertainment and (2) distribute these shares to the current shareholders of Liberty Entertainment. The new entity, Liberty Entertainment, Inc., is expected to be a separate public company and continue to be served by Liberty Media’s existing executive officers.

DBRS is concerned that following this planned spinoff, the remaining debt at Liberty Media (more than $13 billion on a pro forma basis) will weaken asset and cash flow coverage given the significant value that Liberty Entertainment holds and the cash flow generated from its operations and investments (Starz Entertainment Group LLC is the largest operating subsidiary).

DBRS has calculated the assets currently attributed to Liberty Entertainment to be roughly $15 billion and the EBITDA associated with these businesses to be roughly $250 million for the 12 months to June 30, 2008, with cash flow from other investments likely adding nearly another $100 million. As part of the transaction, the 3.25% exchangeable debentures that are currently allocated to Liberty Entertainment will become part of Liberty Capital, with Liberty Entertainment contributing cash to cover the re-allocation of this $551 million obligation. Additionally, Liberty Entertainment, Inc. is expected to be the obligor on the roughly $2.0 billion of debt that was borrowed to acquire 78.3 million shares of The DIRECTV Group, Inc. in April 2008.

The assets currently attributed to Liberty Entertainment include approximately 50% of The DIRECTV Group, Inc.; 100% of Starz Entertainment Group LLC, FUN Technologies Inc. and Liberty Sports Holdings, LLC; 50% of Game Show Network, LLC; and 37% of WildBlue Communications, Inc. DBRS notes that while Liberty Entertainment, Inc. will likely have a reasonable net debt-to-cash flow following its spinoff (roughly 4.25 times), its asset coverage-to-net debt is expected to be very strong, at roughly 10.0 times.

DBRS expects to focus its review on considerations such as (1) the form, structure and timing of the spinoff; (2) the resulting asset value and cash flow coverage of Liberty Media, with more emphasis now being placed on its QVC, Inc. operation; and (3) Liberty Media’s intentions regarding its previously stated goal over the longer term of transforming its passive investment portfolio into a substantial operating company.

DBRS expects to conclude its review on or before this planned transaction is completed, which may not occur until some time in 2009.

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