DBRS Confirms Liberty Media Corporation at BBB (low)p

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of Liberty Media Corporation (“Liberty Media” or the “Company”) as indicated above.

Liberty Media is an investment holding company with its credit ratings supported by several diverse factors. This diverseness is attributable to the ever-evolving investment strategy of the Company’s CEO, John Malone. Mr. Malone’s opportunistic investment approach in various U.S. industries is the main driver in Liberty’s merchant banking type operations. At present, the rating reflects the following: (1) the investment in QVC Inc. (“QVC”, dominant home shopping leader), (2) valuable holdings in several media companies, and (3) excellent liquidity.

The rating is limited since Liberty is constantly altering its investment portfolio, which results in an ongoing overhang due to event risk. Even so, the significant value of the current investment portfolio, relative to debt, provides additional security to bondholders. In fact, Liberty Media’s securities portfolio, consisting mostly of highly liquid blue-chip companies with strong credit profiles, is valued at approximately US$20 billion, or nearly twice the Company’s outstanding debt.

The eclectic growth over the years in assorted assets has increased the complexity in the Company’s structure. In an effort to reduce this, the Company recently spun out Discovery Communications Inc. (“Discovery”). While the spin-off of Discovery reduced asset levels, the Company still maintains good debt protection with an estimated asset-to-debt ratio of approximately four-to-one. However, any further large spin-offs could alter its credit profile. For example, the Company is considering the sale of its 18% investment in News Corp.

At present, Liberty relies primarily on QVC’s operations to support its operations at the corporate level. QVC has the size, stability, and growth that can underpin the costs associated with Liberty’s investment operations, as well as funding costs. QVC continues to expand its retail sales, consistently generating good free cash flow. QVC continues to benefit from rising consumer interest in interactive television programming and good consumer spending. In the past 12 months, QVC added subscribers and increased sales per customer, which resulted in over US$1.3 billion of EBITDA. QVC’s robust free cash flow enabled Liberty to continue to reduce debt levels and exercise balance sheet discipline. In the future, Liberty is expected to continue with its diverse investment strategies, with no intention of becoming a “conventional” operating company. DBRS expects it will remain entrepreneurial and opportunistic.

Note:
p - This rating is based on public information.