Moody’s Warns on Liberty Debt

Liberty Media Corp.’s multibillion-dollar rush to become a top-tier entertainment company through its proposed acquisitions of QVC shopping channel and Vivendi Universal’s Hollywood businesses prompted an unwelcome warning Monday from a major credit-rating firm.

Moody’s Investors Service Inc. said the debt Liberty might amass could put heavy financial pressure on the Englewood, Colo.-based company, headed by John Malone. As a result, Moody’s said, it might downgrade Liberty’s credit rating to below investment grade, or junk status. That could force Liberty to pay higher interest on its debt and make it more expensive to borrow, complicating its run at Vivendi Universal Entertainment.

Last week, Liberty said it had agreed to pay $7.9 billion for Comcast Corp.’s 57% stake in revenue-rich cable channel QVC, causing Moody’s to raise questions about Liberty’s plan to simultaneously land the Vivendi entertainment assets.

Liberty is among various investors and companies -- including Metro-Goldwyn-Mayer Inc. and General Electric Co.’s NBC -- competing to buy the assets. Liberty bid an estimated $14 billion for the movie studio, theme parks, television operations and Universal Music Group. Vivendi decided to keep the music group and has asked Liberty and others to revise their bids.

On Monday, some analysts were caught off guard by the early warning of a downgrade, because of Liberty’s strong cash position. They said Moody’s action could prompt Malone to recruit a partner for his Universal offer to reduce his financial exposure.

“It’s certainly not a positive, but it’s also not going to cause Liberty to pull out of discussions,” said Matthew Harrigan, managing director of investment bank Janco Partners Inc. in Denver. He said Liberty might try to team up with one of its rivals for Vivendi Universal -- either NBC or Viacom.

In its investment report, Moody’s noted that Liberty would take on more than $5 billion of debt under its agreement to buy QVC. “Liberty’s investment activity may strain certain asset coverage and liquidity metrics that have been the underpinning of its investment grade rating,” Moody’s said.

A Liberty spokesman declined to comment.

Liberty has the financial means to buy QVC and the Vivendi entertainment assets, but it’s unclear how far it will go to pursue both deals.

Liberty, a media investment company with stakes in such entertainment firms as AOL Time Warner Inc. and Discovery Communications Inc., doesn’t need to buy Universal’s assets to achieve its goal of transforming itself into an operating company, which brings tax advantages.

Some close to the Universal auction believe that Liberty struck the QVC deal as a fallback should its play for Vivendi fail. In addition to MGM, NBC and Viacom, competitors include investment groups headed by Edgar Bronfman Jr. and oil magnate Marvin Davis.

Moody’s rates Liberty Baa3, the lowest investment-grade rating level. The ratings company said the review would depend on Liberty’s plan to finance the QVC purchase, its investing activities and its ability to generate cash flow from the acquired businesses to service debt.

Other rating firms maintained their ratings on Liberty.

Liberty’s 5.7% notes maturing in May 2013 fell 2.3 cents on the dollar to 100.1, according to TRACE, the bond price reporting system of the NASD.

The company’s shares rose 74 cents to $12.19 on the New York Stock Exchange.

Times wire services were used in compiling this report.