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Moody's Raises Liberty Interactive (LINTA) CFR from B1 to Ba3; Outlook Stable

March 4, 2013 11:36 AM EST Send to a Friend
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Moody's Investors Service today upgraded Liberty Interactive Corporation's (Nasdaq: LINTA) Corporate Family Rating to Ba3 from B1 and also upgraded the ratings assigned to various debt instruments issued by LINTA to B2 from B3. At the same time Moody's affirmed QVC Inc.'s debt ratings at Ba2 and assigned a Ba2 rating to QVC's proposed 10 and 30 year senior secured notes that will be issued to refinance its existing 2017 notes as well as partially re-finance its 2019 notes. The SGL rating was affirmed at SGL-1.

Liberty Interactive:

The following ratings were upgraded (and LGD assessments amended):

Corporate Family Rating to Ba3 from B1

Probability of Default Rating to Ba3-PD from B1-PD

Senior unsecured notes to B2 (LGD5, 83%) from B3 (LGD5, 82%)

Senior unsecured exchangeable notes to B2 (LGD5, 83%) from B3 (LGD5, 82%).

The following rating was affirmed:

Speculative Grade Liquidity Rating at SGL-1

QVC Inc.

The following ratings were affirmed (and LGD assessments amended):

QVC Inc. senior secured notes (various) at Ba2 (LGD 3, 31% from LGD2, 28%)

The following ratings were assigned:

$500 million senior secured notes due 2023 at Ba2 (LGD3, 31%)

$250 million senior secured notes due 2043 at Ba2 (LGD3, 31%)

RATINGS RATIONALE

Proceeds from the new note offerings by QVC Inc. will be used to fund a full tender offer for its existing 2017 senior secured notes as well as the partial tender of the 2019 senior secured notes. QVC also announced an extension of its existing $2.0 billion (unrated) credit agreement until 2018 with reduced pricing. These refinancing activities will have no effect on absolute debt levels at LINTA but will modestly reduce the company's interest expense.

The upgrade of LINTA's Corporate Family Rating to Ba3 from B1 reflects steady financial performance and Moody's expectation that the company will continue to maintain moderate leverage with adjusted debt/EBITDA in the low four times range. We expect some moderate improvement in leverage from the expected redemption of the $414 million 3.25% senior exchangeable debentures due 2031 and the maturity of the 5.7% senior notes in May of 2013. Both of these instruments are expected to be redeemed with cash. As previously indicated, a permanent reduction in non-QVC debt instruments would be viewed favorably by Moody's.

The upgrade of the various LINTA unsecured debt ratings reflects the upgrade of the Corporate Family Rating to Ba3 from B1. The B2 rating reflects their structural subordination to a meaningful amount of debt that is issued by QVC Inc., which generates the substantial portion of LINTA's consolidated earnings. The affirmation of QVC senior secured debt at Ba2 reflects structural seniority to LINTA creditors with respect to QVC's assets and cash flow. QVC's notes and unrated revolver are not guaranteed by LINTA. Conversely, QVC's creditors have no direct claim on LINTA's assets held outside of QVC.

LINTA's Ba3 CFR reflects the good operating margins and cash flow generated from its portfolio of operating assets led by QVC, its moderate leverage with debt/EBITDA in the low four times range, and risk that its assets will be utilized in a manner that benefits shareholders more than bondholders. The rating also recognizes QVC's sizable position in the television shopping industry, its international expansion and strong capabilities in online shopping. The ratings also take into account the company's solid overall liquidity profile with its high cash balances and long term debt maturity profile.

The stable rating outlook reflects our expectation that LINTA will consider opportunistic transactions including share repurchases. We also expect Liberty to retain a solid liquidity position and that the QVC business will continue to show stable performance, notwithstanding economic pressures in Europe where the company has a meaningful exposure. The stable rating outlook also reflects our expectations that QVC will maintain debt/EBITDA within its target range of 2.0-2.5 times.

In view of the company's history of aggressive financial policies, there is limited upward rating momentum in the near term. Over time maintaining balanced financial policies and continued meaningful debt reductions could lead to an upgrade.

The ratings could be downgraded if liquidity weakens, the asset composition or risk profile meaningfully changes, QVC's operating performance deteriorates meaningfully, or debt-to-EBITDA is sustained above 5.25x.

Liberty Interactive Corporation (LINTA), headquartered in Englewood, Colorado, is a holding company that owns and operates QVC, and a portfolio of e-commerce companies. It also holds significant equity positions in Expedia (Ba1/stable), HSN,Trip Advisor and other smaller issuers. QVC was founded in 1986 and has operations in the U.S., United Kingdom, Germany, Japan and Italy.

The principal methodology used in this rating was the Global Retail Industry Methodology published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.




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