Malone's Starz Sells Bonds Lacking Protection

Demand for high-yield debt gives borrowers more power to dictate deal terms.

Starz LLC, the movie channel provider owned by billionaire John Malone’s Liberty Media Corp., is pouncing on unprecedented demand for junk bonds to sell $500 million of notes that lack standard bondholder protections.

Documents governing the terms of the debt are “flawed” and “highly off-market,” according to research firm Covenant Review LLC, putting bondholders in danger of being subordinated by new obligations or left without recourse if the company sells assets. Starz issued the debentures to facilitate a $1.8 billion dividend to Englewood, Colorado-based Liberty Media as part of a transition to becoming a publicly traded company.

‘Standalone Structure’

Liberty Media plans to spin off Starz, a competitor of Time Warner Inc.’s HBO, by year-end, it said in an Aug. 8 statement. The split is structured to be tax-free to the movie channel provider’s shareholders.

Note Terms

The terms of the notes allow Starz to issue at least $725 million of secured debt, according to Covenant Review. They also permit the company to pay dividends to shareholders or invest in unrestricted subsidiaries based on meeting a consolidated leverage ratio, as opposed to the standard use of a calculation related to net income and equity contributions.

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