After giving this one some more thought I will provide my full current analysis (long one sorry). There may still be a few of you who are out there :)
The correlation between cable/satellite customer declines and QVC customers is pretty strong around .94-.97 which is pretty significant. This is leading me to believe any management talk about "Tiktok" or other streaming things is nothing more than a deep pass at the goal of their own end zone hoping they connect. In this case our QB is more likely to be Rex Grossman than prime Aaron Rodgers.
If we can then acknowledge the revenue declines are secular and not cyclical then QVC has a real problem here. They are far too married to linear TV to separate and as cord cutting keeps going this will steal more from their base and contract revenues even further. Any time management provides some explanation as to why revenue declines I now laugh because you can map it to cable/satellite and see where the ball is going to be.
Revenue declines will drive further pressures on margins as we can already see and one can only cut so many limbs off. If we measure their EBIT there is real structural decline here even as they've cut costs. FCF margins use to be around 11-14% and last year they were 5% which aligns with their FCF being only $238 million.
They currently have $833 million in combined cash between HoldCo (QVC Group) & OpCo's (QVC/HSN, Cornerstone, Liberty), but a large chunk of this cash is because they sold a ton of property & equipment to fund themselves in 2022-2024. So while many look at this cash as optionality, I see it as they cut a arm off and must spend every $ with surgical precision because future $ are not guaranteed now.
Now they took care of their 2025 notes ($585 million) by using a small mix of cash but also drawing in on their credit facility. This took the facility from being drawn at $1.195B to now $1.850B. What I found interesting is in their Q4 call Ben Oren (who is with Liberty) stated they were in active dialog with banks to refinance their 2026 credit facility and we should have an update by Q1/Q2. Q1 rolls in and the QVC CFO, Bill Wafford, is now dodging questions on if the revolver refinance is even still on the table.
What I think is happening here is JPM is not looking to give them a favorable refinance. Their current rate is based on SOFR and few other criteria so it is likely this facility is going to go from a 6.06% rate to a 8.5-10% rate. I think this high because QVC just received a FITCH credit downgrade in March and then got one from Moodys and in May just got ANOTHER downgrade from Fitch putting QVC itself into junk. QVC also took Coronerstone off as a borrower in Q1 to help their leverage ratio, but this carries another problem which is size. Current borrowing capacity is sized for QVC/HSN, Coronerstone, and Zulily. With Cornerstone and Zulily gone I can imagine JPM will want a smaller borrowing capacity as one borrower does not need almost $3B. So with $1.85B drawn, smaller capacity, higher interest rate, and likely even tighter covenants (e.g, dividend upstream restrictions) it's likely this refinance is creating problems.
I also callout that last year QVC engaged in an exchange with holders of their 2027/2028 notes for new 2029 notes. They took 4.375-4.75% debt and turned it into 6.875% debt and it's already 50% off from a FMV standpoint (worth noting there were some holdouts here). The fact that this near-term debt is already distressed likely now makes even the revolver refinance an obstacle. The banks will want their money before any other holders so given a wall of maturity in 2029 I would expect the refinance to be 2028 which doesn't give QVC much time to pay it down...which they need to.
This leads me to the unfortunate reality that chapter 11 is likely on the table here.
I see many write that the common, QVCGA, has options and they will be okay, but in my understanding, this is not how real-world works. What is likely to happen is QVC will try to form bond committees and see if they can work with folks in an out of court restructuring. I find this to NOT be a likely solution given the range of maturities, debt profiles (bonds vs. bank debt), and seniority couple with revenue declines. It is very possible holdouts will form as some will be happy to take a haircut and while near-term maturities may feel an orderly liquidation gets them whole. All of the QVC OpCo debt is senior too so they will all for sure have different desires for outcomes.
Now I have read some arguments that perhaps they use cash to buy distressed debt back on open market but this is unlikely. If one considers QVC is in the zone of insolvency then there are some huge risks especially if revenue keeps collapsing. If they file bankruptcy they open themselves up to fraudulent transfer suits and claw backs. Heck, possible senior holders then push to force a bankruptcy. I think one must consider the 2040-2068 debt was distressed in 2022 too and they didn't touch it. Why?
This will lead to a full chapter 11 filing as truth is QVC has no leverage. Many will argue QVC has potential in the future, but if that is the case then why would I, as a bondholder, take a haircut to help QVCGA equity? If anything I can force myself into new equity in a debt-equity swap and take control of the OpCo asset and the capture the potential in full. The way the company is structured is QVC Group (HoldCo) owns all equity in QVC/HSN (OpCo) so if OpCo files then lenders will likely get new equity in OpCo (OpCo equity is collateral in debt) and take control from HoldCo. Possible HoldCo can throw some cash in a DIP (unlikely) and they keep some small equity but I see existing equity cancelled and new equity. This leave HoldCo with Liberty & Cornerstone and given both don't generate enough then HoldCo would need to file bankruptcy eventually anyway - likely when they file it's joint. FWIW the reason I see HoldCo owners rushing in for a DIP is likely senior holders will jump in and fight and because DIP gets an almost super priority in bankruptcy and they won't want anyone getting in the way of them getting paid.
I think this will be ugly as I could see OpCo lenders fighting hard. HoldCo has cash on hand but it came from OpCo and there can be arguments formed about when did QVC become insolvent. Was it in 2022 when Rocky Mountain happened? If so OpCo holders may argue cash was up-streamed to HoldCo and they used this cash to pay preferred dividends while OpCo sold assets and materially weakened its asset value. HoldCo got richer while OpCo got weaker. It wasn't until Q1 2025 when HoldCo finally stopped paying the dividend on QVCGP.
So lot of thoughts there and I am sure I am missing a few things. I did buy some QVCD as I think this makes out okay even in bankruptcy. It's OpCo senior bonds that carry 6.375% and trade for $8.31 in the market. If what I think happens...happens then this will rise and if one decided to hold could see it swapped into new equity. If a chapter 7 were to come of course this would be a dud, but I think there's some potential in the senior bonds right now. Unsecured/preferred/equity are likely to be cancelled out as not enough asset value to cover.
Worth noting too that QVC management already engaged legal support in May 2025 and both secured and unsecured lenders have as well. Tells me this isn't leading to an open market debt exchange but legal fights are beginning.
-Sean |
