Fitch Affirms Liberty Interactive LLC's IDR at 'BB'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings has affirmed all the ratings of Liberty Interactive LLC (Liberty) and QVC, Inc. (QVC), including the companies' 'BB' Issuer Default Ratings (IDRs). A full rating list is provided at the end of this release.

Liberty announced its intentions to 1) spin-off its 22% equity/57% voting interest in TripAdvisor Inc. (TRIP) and its BuySeasons Inc. business (Evite will be separated from BuySeasons) and 2) separate the Liberty Interactive tracking stock into two new tracking stocks, QVC and Liberty Digital Commerce.

TRIP and BuySeasons Inc. will be transferred to a new entity and the new entity's equity will be distributed to the Liberty Venture tracking stock holders. BuySeasons, which is currently attributable to Liberty Interactive, will be reattributed to Liberty Ventures. In return Liberty Interactive will receive cash compensation equal to the fair market value of BuySeasons. In conjunction with the spin off, the new entity is expected to borrow $400 million, with $350 million distributed to Liberty and $50 million will remain at the new entity for general corporate purposes.

While Liberty consolidated TRIP into its financial statements, Fitch excluded TRIP from its financial analysis. While the loss of TRIP's value (approximately $2 billion) is unfavorable to the credit profile, Fitch's ratings materially rely on QVC, with Liberty's other investments, such as TRIP, viewed as incremental support to the ratings.

The spin-off of BuySeasons will not have a material change to the credit profile. The operations of BuySeasons was not a material contributor to the Liberty consolidated profile.

Liberty intends to separate the Liberty Interactive tracking stock into two new tracking stocks: Liberty Digital Commerce (LDCA/B), which will have the e-commerce companies attributed to it, and QVC (QVCA/B), which will hold QVC and the 38% HSN Inc. stake.

The Liberty debt attributed to Liberty Ventures is expected to remain unchanged and the Liberty debt attributed to Liberty Interactive is expected to be attributed to the QVC tracking stock.

As Fitch's ratings for Liberty and QVC reflect the consolidated legal entity/obligor credit profile, rather than the tracking stock structure, the separation of the Liberty Interactive tracking stock does not have a material impact on the credit profile. Based on Fitch's interpretation of the Liberty bond indentures, the company could not spin out QVC without consent of the bondholders, based on the current asset mix at Liberty. QVC generates 84% and 96% of Liberty's revenues and EBITDA, respectively. In addition, Fitch believes QVC makes up a meaningful portion of Liberty's equity value. Any spin off of QVC would likely trigger the 'substantially all' asset disposition restriction within the Liberty indentures.

Liberty is exploring financing alternatives for LDC, including a potential $250 million credit facility. The facility is expected to refinance existing facilities across the e-commerce businesses. As Liberty would be the expected issuer of the facility, the borrowing costs will be more favorable for the LDC group.