analysis of liberty's idt move, etc. --
US CREDIT-Investors weigh Liberty Media options
Tue Dec 21, 2004 04:17 PM ET
By Nick Olivari and Dan Wilchins
NEW YORK, Dec 21 (Reuters) - Liberty Media Corp.'s (L.N: Quote, Profile, Research) asset trades in recent days may help improve shareholder value, but could also leave corporate bond investors out in the cold, analysts say.
Uncertainty about where the company is headed means investors will likely either win big or lose big, so avoiding the credit might be the best tack, they said.
On Tuesday, Liberty Media said it was exchanging assets such as its holdings in Net2Phone (NTOP.O: Quote, Profile, Research) for shares in Net2Phone's parent, telephone company IDT Corp. (IDTc.N: Quote, Profile, Research) (IDT.N: Quote, Profile, Research) .
The deal comes a day after Liberty Media increased its voting shares in News Corp. (NWS.N: Quote, Profile, Research).
Bond investors are not quite sure what Liberty Media is up to with these moves. There are some fears that assets will be spun off into another company, leaving bond investors with fewer assets to support their debt.
"I don't think they are up to anything that is fixed-income friendly," said Lea Ward, Investment-grade technology, media and telecom analyst at T Rowe Price.
Those fears, accentuated by IAC/InterActiveCorp.'s (IACI.O: Quote, Profile, Research) decision on Tuesday to spin off its online travel service Expedia.com and related businesses, weakened Liberty Media's credit in the corporate bond and credit derivatives markets a bit.
"Bond investors are clearly a little concerned that Liberty will spin off more assets and leave bondholders with less asset base," said Thomas Egan, fixed-income analyst at HSBC.
The cost of protecting Liberty Media's debt against default rose 2 basis points to 105 basis points, or $105,000 a year for five years for every $10 million of principal protected in the credit derivatives market.
Adding to investor worries is how the ratings agencies would view any change to the company's asset structure.
Liberty debt is rated one step above junk grade and any downgrade would result in borrowing costs rising dramatically.
One of the biggest unknowns surrounding Liberty Media is what the company intends to do with its News Corp. stake.
Liberty said on Monday it will swap nearly 87 million Class A shares in News Corp. for 92 million Class B shares held by Merrill Lynch. The swap is expected to be completed no later than mid-January.
Although Liberty said in November the share-swap that doubled its voting power in News Corp. was a "friendly" move, News Corp. announced a poison pill in response.
A deal with News Corp. could be a boon or a pain for bondholders. If Liberty were to sell more debt to make a play for News Corp., existing bondholders would probably suffer quickly.
But if Liberty were to sell some of its peripheral businesses for cash and then make a play for News Corp., bondholders could find their investments worth much more. |
