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Rating Action:

Moody's Downgrades Liberty Media's CFR, bonds to B1; Outlook is Stable

20 Nov 2009

Approximately $4.7 Billion of Rated Debt Affected

New York, November 20, 2009 -- Moody's Investors Service downgraded Liberty Media LLC's (Liberty) Corporate Family Rating (CFR) to B1 from Ba2, Probability of Default Rating (PDR) to Ba3 from Ba2, and senior unsecured bonds to B1 from Ba2 following the spin-off of the majority of its Liberty Entertainment (LEI) group assets including its 57% ownership stake in The DIRECTV Group (DTVG; subsidiary DIRECTV Holdings LLC has a Ba1 CFR). These actions conclude the review for possible downgrade that was initiated on September 3, 2008 upon the spin-off announcement. Moody's also upgraded Liberty's speculative-grade liquidity rating to SGL-1 from SGL-2. The ratings of Liberty's wholly-owned subsidiary QVC, Inc. (QVC) are not affected, including QVC's Ba2 CFR and the Ba2 ratings on its 2019 notes and March 2006 credit facility, as amended. Liberty's rating outlook is stable.

Downgrades:

..Issuer: Liberty Media LLC

....Corporate Family Rating, Downgraded to B1 from Ba2

....Probability of Default Rating, Downgraded to Ba3 from Ba2

....Senior Unsecured Regular Bond/Debenture, Downgraded to B1, LGD4 - 67% from Ba2, LGD4 - 52%

....Senior Unsecured Conv./Exch. Bond/Debenture, Downgraded to B1, LGD4 - 67% from Ba2 - LGD4, 52%

Upgrades:

..Issuer: Liberty Media LLC

....Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2

Outlook Actions:

..Issuer: Liberty Media LLC

....Outlook, Changed To Stable From Rating Under Review

The downgrades are driven by Liberty's significantly reduced financial flexibility and after-tax asset coverage of debt following the spin-off of approximately $13 billion of liquid assets in the form of DTVG stock and the increased proportional reliance on the cash flow generated by QVC and the remaining smaller and more speculative investment portfolio to service Liberty's bonds. Moody's believes that the reduction in the amount and diversity of assets supporting Liberty's bonds no longer fully mitigate the structural subordination of Liberty's stand alone debt to debt at subsidiaries including QVC, which generates a substantial majority of Liberty's consolidated revenue and cash flow. Moody's is also concerned that a potentially volatile investment portfolio and cash may be used in a manner that continues to benefit shareholders more than bondholders and provides a less certain source of protection than a cash generating asset such as QVC. These factors contribute to the two-notch downgrade and the two-notch rating differential between the respective CFR's of Ba2 for QVC and B1 for Liberty.

Liberty's B1 CFR and stable rating outlook reflect Moody's expectation that the company's after-tax asset value-to-debt will remain in an approximate 2x range. Moody's continues to include QVC debt and asset values in calculating Liberty's consolidated asset coverage. Moody's anticipates gross debt-to-EBITDA leverage including QVC (approximately 6.9x LTM 9/30/09 pro forma for the spin-off and incorporating Moody's standard adjustments) will decline to a low 6x range in 2010, but will be well into a double digit range excluding QVC. Liberty has repurchased bonds and committed to a meaningful amortization schedule of QVC bank debt, and this somewhat cushions the decline in the asset coverage ratio.

QVC's credit agreement contains restrictions on distributions to Liberty. QVC can upstream cash to service debt attributed to the Liberty Media Interactive group tracking stock, to fund Liberty's purchase of QVC bank debt, for taxes, and other payments subject to and meeting a debt-to-EBITDA limit of 3.5x (stepping down to 3.25x in March 2010 and 3.0x in March 2011).

The company's Ba3 PDR and the one notch gap with the B1 CFR is based upon Moody's assumption of a below average recovery rate (35%) for Liberty in the event of a default. The ownership of QVC provides a source of liquidity that Moody's also believes leads to default risk more consistent with the Ba3 PDR. The notching of Liberty's bonds (rated B1 with a LGD4 -- 67% assessment) relative to its CFR is evaluated on a stand-alone basis (excluding QVC debt) within Moody's Loss Given Default Methodology as QVC's bank debt and bond ratings are based on QVC's Ba2 CFR. The 35% family recovery rate is consistent with Moody's Loss Given Default Methodology for all-bond structures.

The upgrade of the speculative-grade liquidity rating to SGL-1 from SGL-2 reflects the return of cash on the SiriusXM investment, and incremental headroom under QVC's credit facility covenants provided by debt reduction and a stabilization of earnings. Liberty has a sizable cash balance (approximately $4.4 billion post spin), no near term bond maturities, sufficient projected QVC free cash flow to meet QVC's bank debt amortization, and good cushion under the financial maintenance covenants in QVC's credit facility.

Additional information on Liberty's rating rationale can be found in the credit opinion posted to www.moodys.com.

The last rating on action Liberty occurred on February 18, 2009 when Moody's lowered the company's speculative grade liquidity rating to SGL-2 from SGL-1.

Liberty's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (iii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside Liberty's core industry and believes Liberty's ratings are comparable to those of other issuers with similar credit risk.

Liberty, headquartered in Englewood, Colorado, is a holding company that owns and operates a broad range of electronic retailing, communications, and entertainment businesses and also owns equity and debt positions in wide variety of technology, media and telecommunications companies.

New York
John E. Puchalla
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Russell Solomon
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades Liberty Media's CFR, bonds to B1; Outlook is Stable
No Related Data.
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