Sellside analysts say Liberty Media's announcement last week that it will fund United-Pan Europe Communications through a convertible bond that will be senior to outstanding UPC paper, instead of the planned rights offering, raises concerns about the extent of Liberty's commitment to the subsidiary. UPC 11.25% notes of '10 traded down from about $60 to $55 on the announcement, and analysts say UPC has funding needs that will be difficult to meet, and should leave bondholders looking for the next opportunity to trade out of the credit. Calls to Liberty were not returned by press time.
David Sharret, director of European high yield telecom and media research at Lehman Brothers, says that though UPC claims its funding gap has been reduced to EUR0.5-1.0 billion, Lehman's model continues to demonstrate that the funding need is approximately EUR2 billion, assuming it achieves some aggressive targets. "In order to fill UPC's funding gap, future financing may further subordinate UPC bondholders," Sharret adds.
Galia Velimoukhametova, cable, media, and wireless analyst at J.P. Morgan Securities, says she has concerns about UPC plans to spin off its Polish operations, and believes it will have difficulty finding a strategic shareholder for Priority Telecom, a subsidiary. "To be frank, we see risks and downsides," she says.