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Fitch: Liberty Interactive and QVC Ratings Unaffected by GCI Acquisition
April 6, 2017 / 5:21 PM / 8 months ago

Fitch: Liberty Interactive and QVC Ratings Unaffected by GCI Acquisition

(The following statement was released by the rating agency) NEW YORK, April 06 (Fitch) According to Fitch Ratings, the ratings for Liberty Interactive LLC (Liberty) and its wholly owned subsidiary QVC Inc. (QVC), including the 'BB' Long-Term Issuer Default Rating (IDR), are unaffected by the acquisition of General Communication, Inc. (GCI) and subsequent tax- free spin of a newly formed entity (GCI Liberty) created following the contribution to GCI of certain assets and liabilities of Liberty Ventures Group (Liberty Ventures), a wholly owned subsidiary of Liberty (collectively, the Transactions). The Rating Outlook is Stable. Fitch believes the transactions are neutral to the ratings. While Liberty's transfer of assets to GCI Liberty represents a credit negative, Fitch has always relied materially on QVC Inc. (QVC) and viewed Liberty's other assets as providing incremental support. Fitch also notes there will be no changes to the legal/obligor structure of Liberty or QVC as a result of the transactions. In addition, gross leverage at QVC remains outside Fitch's target for the rating. Fitch does believe the transactions will have mixed credit effects on QVC and Liberty. They represent a credit positive to QVC given the liquidity improvements resulting from the associated reattribution of certain assets and liabilities to QVC. However, they represent a credit negative to Liberty due to the transfer of assets to GCI Liberty which reduces asset coverage for Liberty's unsecured debt. On April 4, 2017, Liberty announced the acquisition of GCI in an all-stock transaction representing a $2.68 billion enterprise value for GCI. To allow for the acquisition, Liberty Ventures will contribute its equity interests in Liberty Broadband, Charter Communications, Inc. (Charter), and Lending Tree, Inc., along with its Evite operating business and certain other assets and liabilities to GCI for a controlling interest in GCI. Upon completion of the contribution, Liberty will affect a tax-free spin of its interests in GCI Liberty to existing Liberty shareholders. Upon completion of the spin, expected to occur during the first quarter of 2018, Liberty shareholders will own a 77% undiluted equity interest and 84% undiluted voting interest in GCI Liberty, with former GCI shareholders owning the remaining interests. Liberty will change its name to QVC Group Inc. (QVC Group) after the spin's completion . Prior to its contribution to GCI, Liberty Ventures will reattribute to Liberty approximately $329 million of cash (amount to be finalized at closing), exchangeable debentures having annual estimated associated tax benefits of approximately $130 million, and aggregate estimated tax benefits from prior spin-offs of approximately $23 million. In addition, Liberty Ventures will reattribute a portfolio of green energy investments worth an estimated $138 million, Liberty's equity interests in Interval Leisure Group (ILG) worth an estimated $260 million after tax, and de minimis amounts of Time Inc. and Time Warner Inc. shares. As part of the transactions, Liberty will offer to exchange its 1.75% Charter exchangeable debentures due 2046 (Charter Debentures) for mirror debentures of GCI Liberty (Mirror Debentures). QVC Group will then guarantee GCI Liberty's payment obligations on the Mirror Debentures through the put date of Oct. 5, 2023. GCI Liberty will back the guarantee with an indemnity and a negative pledge on the underlying Charter shares for any payments made including excess payments to holders exercising their exchange rights. Fitch will include this in its total leverage calculation for QVC Group . Fitch's ratings materially rely on QVC, with Liberty's other investments viewed as incremental support. The ratings incorporate the spinoffs of CommerceHub, Inc. in July 2016, Liberty Expedia Holdings, Inc. in November 2016 and GCI Liberty. Pro forma for the spinoffs, assuming QVC uses the full $329 million from Liberty Ventures to repay debt, and including the Mirror Debentures guarantee, Fitch estimates QVC's gross leverage at 2.6x and Liberty's gross leverage at 4.1x as of Dec. 31, 2016. Fitch continues to expect QVC will reduce total leverage to its 2.5x target within the next nine to 12 months. Contact: Jack Kranefuss Senior Director +1-212-908-0791 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Rachael Shanker Associate Director +1-212-908-0649 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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