Ahhhhh a new member to this old site. Welcome!
<< Which bond would you see as the fulcrum in the even of a filing?>>
With all the QVC, Inc debt being pari and not really enough EV to cover it, it really depends on what your financial goals may be. 2027-2028 are nearest maturity so probably doesn't hurt to pick those. Otherwise the baby bonds are at a discount too and also pari so if you plan to play at all I don't think those are a bad option - plus can grab them a bit easier than the other bonds through your broker. I held QVCD earlier in 2025 and got a good return + the coupon until I sold later in the year. Reality is there is no real fulcrum in the bonds though.
In a bankruptcy filing it's not uncommon for bonds to gap down as sellers are forced to sell because of the situation. The question that comes next is if they file is this a prepackaged bankruptcy or a freefall? If it's a prepack then the entire thing could typically be resolved in 40-60 days and move real fast and thus bonds don't see the gap or they gap and recover before you can position. If it's freefall then the gap down risk is real and then who knows if the bonds are worth it - one would just need to monitor and read all court documents to see where it's going so the positioning can change fast depending on what an investor sees happening in court. If a good opportunity presents then the depressed price opens a very attractive opportunity. This is why I continue to watch.
In a bankruptcy scenario I would see creditors taking QVC, Inc equity (which is what is pledged) and HoldCo/ParCo likely gets nothing or a stub holding; in a stub holding the parent dividend is gone so regardless it's worth "nothing" to QVCGA. This would mean likely most bonds are converted into new equity of the reorganized QVC, Inc. Or worst case it drags in court, bleeds value, and they liquidate in an organized chapter 11 liquidation which is also possible.
<< In addition, does the DTL crystalize once a filing take place, followed by a IRS 108 exclusion of insolvency to avoid the DTL?>>
The game is a bit different in bankruptcy. There are some writing that state a DTL is believed to NOT meet the definition of a claim under the bankruptcy code and thus not liabilities subject to compromise. It is not like this becomes a automatic cash situation and then you get into fresh start accounting if they come out so I can't say what happens here and would just need to let it play out in court.
If they attempt to use §108 out of court the only thing they fight off is the massive CODI from the early retirement of these debentures up to their insolvency capacity. As I explained to you on Substack they already received the tax benefits for these debentures so the DTL would reverse but it would still be a possible economic liability for the company. In the future when they return to solvency, maybe following year or whenever, then this could be a likely cash outflow risk at that time whenever that time occurs.
How much cash risk is hard to say. Using §108 they would likely have to reduce some tax assets because CODI was excluded which possibly are the same tax assets they intended to leverage to offset almost half the DTL at maturity as their own 2024 investor deck from November states:
And a snip from code §108 :
(b) Reduction of tax attributes
(1) In general
The amount excluded from gross income under subparagraph (A), (B), or (C) of subsection (a)(1) shall be applied to reduce the tax attributes of the taxpayer as provided in paragraph (2).
(2) Tax attributes affected; order of reductionExcept as provided in paragraph (5), the reduction referred to in paragraph (1) shall be made in the following tax attributes in the following order:
(A) NOL
Any net operating loss for the taxable year of the discharge, and any net operating loss carryover to such taxable year.
(B) General business credit
Any carryover to or from the taxable year of a discharge of an amount for purposes for determining the amount allowable as a credit under section 38 (relating to general business credit).
(C) Minimum tax credit
The amount of the minimum tax credit available under section 53(b) as of the beginning of the taxable year immediately following the taxable year of the discharge.
(D) Capital loss carryovers
Any net capital loss for the taxable year of the discharge, and any capital loss carryover to such taxable year under section 1212.
(E) Basis reduction
(i) In general
The basis of the property of the taxpayer.
(ii) Cross reference
For provisions for making the reduction described in clause (i), see section 1017.
(F) Passive activity loss and credit carryovers
Any passive activity loss or credit carryover of the taxpayer under section 469(b) from the taxable year of the discharge.
(G) Foreign tax credit carryovers
Any carryover to or from the taxable year of the discharge for purposes of determining the amount of the credit allowable under section 27
So do I expect the full $1,138M to be a cash risk? No, but there will be some cash outflow risk here once solvent. We're again modeling out of court here and Liberty Interactive, LLC has maybe $205M in cash +/-. So let's say they spend ~$82M to take out these debentures (which saves them only $30.05M in annual interest BTW) now they have $123M in cash and this doesn't factor any transaction costs and whatever else.
They used §108 which saved them likely a large CODI hit but again that DTL is the direct result of receiving a tax benefit since these instruments were issued where they deducted and boosted cash flow in the current period but created a corresponding liability. They already received the benefits in real time and have for well over a decade so this isn't a cancellation of income from retiring the debentures and using §108 will still make them a threat when they become solvent again. Maybe the following year? The year after that?
Either way Liberty doesn't generate any cash so not like they're coming up with the millions needed to handle when solvent so it delays a likely court outcome but the issue is delayed already since maturity isn't until 2029-2030. The truth is there is no way to model this tax situation from their financial documents which is likely why this isn't even listed as a cash obligation on their financials because so much is contingent on timing, their financial status, what tax assets they have to use or not use, and various other factors. That said upon returning to solvency there could likely be a cash outflow. Is it $1,130M? Maybe not, but is it $250M? If they only have $123M in cash left then this $250M outflow leaves them with ($127M) and will need ParCo to downstream some of their cash and what if the situation requires more cash to satisfy?
Their own investor decks reference this as a "true liability" that would be owed if bonds were redeemed at year and the bigger hit is the impact to the tax shield and cash flows as by 2029 they anticipated $400M+ of annual cash flows (of course company is much weaker since this slide in 2017):
A long while ago I attempted to model myself this system from the 2029/2030 debentures and below is a looser model so you can get some sense of the benefit they would be giving up:
The above main table is the 2030 debentures and the last three columns are the combined 2029/2030.
In my view taking these out outside of court burns cash, doesn't improve ANYTHING for QVC, Inc leverage ratio, saves only $30.05M in cash in interest annually and there's only three-four years left on maturity anyway, and ruins a good tax benefit they receive today so why bother? Better to focus on the real problem which is QVC, Inc as the HoldCo/ParCo problems go away if the crown jewel is healthy again. In bankruptcy too they won't deal with CODI and the DTL isn't likely to be a claim which itself would possibly make court more attractive.
Anyway we will see as I would expect some action in the coming weeks now so we will see I suppose. The recent TikTok transaction normalization reinforced my view that they paid-to-play and likely spent $80-90M in advertising dollars to get the pop they did. From 12/14/2025-1/1/2026 TikTok normalized to an average of 5.6K transactions which is a steep decline from the +12-16K and while Q4 showed promise if they're only averaging this range in Q1 then this isn't likely enough to hold creditors at bay and let them wait it out.
With the normalization to 5.6K transactions over that 18 day period I have Q4 somewhere around $49-58M in gross revenue. Once you factor returns maybe $41.895-49.59M and which gives an EBITDA impact of $4.61M-$5.45M and a core cash flow conversion of maybe $2-3M. I suppose one should hope their other streaming platforms really closed the gap.
Business Insider ran a story that TikTok Shop in the US did $500M between Black Friday and Cyber Monday. QVC was 10-12% of what TikTok did in that four day stretch but that was QVC's ENTIRE Q4! They note that Disney, Ralph Lauren, and others are all now on TikTok which means the entire landscape is more compeatative which some remaining bulls believed only QVC could compete on. Harrys razor brand hired a TikTok Shop person and is paying them $150K a year to just do TikTok. Per the article "household-name brands like Disney, Samsung, and Ralph Lauren, once hesitant to sell in an unproven marketplace, all signed up for TikTok Shop in the US in recent months. Razor brand Harry's is paying as much as $150,000 a year to hire an in-house "TikTok Shop manager" who will monitor the app full-time.".
Sad situation though. These employees worked hard so I hope I am wrong and the company is able to continue to thrive. In my view I think filing gives QVC, Inc the better opportunity with a clean balance sheet and less leverage from above.
Welcome and happy investing,
Sean |
