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.

"They took some liberties," Robert Matz, an analyst at Covenant Review in New York, said in a telephone interview. Starz officials "can send money out of the company without the company ever earning a cent," diminishing the cash available to meet interest payments, he said.

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