WILMINGTON, Del. (CN) – Liberty Media, which owns substantial stakes in the Atlanta Braves, Sirius XM Radio, Time Warner and the Starz cable network, asked the Delaware Chancery Court to approve its complicated restructuring plan and reject a major debt-holder’s assertion that the scheme is a fire sale of assets.
Failing to approve the plan would have a “devastating effect” on the value of Liberty Media’s securities, compromise its ability to refinance its debt, and leave it facing the threat of $4.7 billion in debt becoming immediately due and payable, according to the complaint in Chancery Court.
Liberty Media reported in July that operating income at its Liberty Interactive subsidiary, which includes QVC shopping and several Internet businesses, increased by 3 percent from a year ago, and that operating revenue from its Liberty Starz Group, which includes the premium cable network Starz Entertainment, was up by 28 percent.
But operating losses at Liberty Capital, another subsidiary, which consists of numerous media investments, rose to $83 million of red ink, a more than 300 percent from the previous year’s $19 million.
Liberty Media sued the Bank of New York, as trustee for its public debt.
Liberty claims it proposed to deal with the imbalance of profit and loss by splitting off common shares in Liberty Starz and Liberty Capital and converting Liberty Interactive shares into an independent, asset-backed stock called “Splitco.”
Under the arrangement, which has the backing of Liberty Media’s board of trustees, Liberty would continue to be the obligor under its outstanding indenture, and would continue to issue notes and securities. Splitco would have no liability with respect to those actions, the complaint states.
But in late July, counsel for the unidentified holder of approximately $250 million in Liberty shares expressed concerns that the split-off would dispose of “substantially all” of Liberty LLC’s assets “in direct violation of [Liberty LLC’s] obligations under the indenture.”
The objecting attorney claimed that the split-off “undermines the rights and expectations of our client as to the assets they are entitled to reply on for repayment of the bonds.”
Liberty claims that the Bank of New York might cite that to claim that the split-off constitutes a default of Liberty Media’s outstanding loans and obligations.
Unless the Chancery Court declares that the split-off does not constitute a sale of “substantially all” of its assets, the Bank of New York could accelerate repayment of the outstanding securities and take legal action to compel repayment, Liberty Media said.
Without injunctive and declaratory relief, Liberty claims, shareholders will be prevented from reaping the benefits of the split-off.
Liberty Media is represented by Donald Wolfe Jr., with Potter, Anderson & Corroon of Wilmington.