QVC Plans to Offer Senior Notes - Analyst Blog

By Zacks | June 28, 2012 AAA

QVC Inc., a wholly owned subsidiary of Liberty Interactive Corporation (LINTA), has announced to offer senior secured debts and expects to generate net proceeds of $500 million. We believe that the proceeds from the senior debt will be used to partly reduce the company's high leverage position. The senior debt is expected to carry an interest rate of 5.125% and is due for payment in 2022. The debt issuance is backed by the same collateral which secures QVC's existing and future credit facility. The notes will be offered only to qualified institutional buyers outside the U.S. who are exempted from the registration requirements of the securities act.  

Liberty Interactive Corporation exited the first quarter of 2012 with an enormous amount of long-term debt. The company has $6,183 million of outstanding debt and further issuance of debt could raise its debt position. At the end of the first quarter of 2012, Liberty Interactive had 2,137 million of cash and marketable securities. Going forward, the mounting interest will lead to higher interest payment for the company, thus impacting its liquidity position.   

QVC, the most prestigious unit for Liberty Interactive, is the undisputed market leader in the $8 billion TV home-shopping business. Currently, QVC commands an estimated 69% market share, far ahead of its nearest rivals, HSN Inc. (HSNI) and ValueVision Media Inc. (VVTV) and others. It is expected that QVC will continue to leverage its brand to rapidly grow its internet operations. Exposure to international markets, such as Japan, Germany, Italy, and the U.K. will enable QVC to achieve a higher rate of growth.

QVC is gradually expanding its presence in these developed markets. However, expansion in these markets requires continuous investment. We believe that the company is issuing this senior debt to continue its expansion plans and at the same time pay back its existing credit obligations. Standard and Poor's Rating Services has issued a 'BBB' rating for the senior debts as they believe that the company will continue to perform steadily over the intermediate term. 

Recommendation:

We are maintaining our long-term Neutral recommendation on Liberty Interactive Corporation. Currently, Liberty Interactive Corporation has a Zacks #3 Rank, implying a short-term hold rating on the stock.

 
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