A Research Project For the Long Weekend

Certainly there are a number of folks who already own (disclosure-I have a full position), or have considered, the following investment and maybe there are others that might want to consider owning the preferred shares below.

The particular preferred I am writing about is the Liberty Broadband 7% Cumulative Redeemable Preferred (LBRDP).

This security is a $25 preferred that was originally issued by GCI Liberty (now an operating division of Liberty Broadband) in March 2018. The company combined with Liberty Broadband in 2020. The preferred were exchanged for Liberty Broadband shares with the same terms and conditions of the original shares.

The attractive feature of this preferred is that there is no early redemption and it has a mandatory redemption in 2039. Shares are currently trading at $27.23 for a current yield of 6.46%.

Liberty Broadband is a company with only minor operating businesses–the primary holding is 26% of Charter Communications (CHTR) a giant sized broadband/cable company (revenue around $50 billion) which accounts for 75% of Liberty Broadband assets. Liberty has assets of over $20 billion with liabilities of $7.6 billion (as of 3/31/2021) meaning the balance sheet is extremely strong. The most recent 10-Q quarterly report can be read here.

While the preferred issue is unrated it would certainly appear to qualify for an investment grade rating based on the balance sheet.

This is not a recommendation to buy this security, but just ‘food for thought’ in these times of low coupons.

Further Note–In the event of a merger, buyout, liquidation or ‘winding up’ it is highly likely these shares could be redeemed.

26 thoughts on “A Research Project For the Long Weekend”

  1. My Fidelity account shows coupon of 5%? Wouldn’t be the first time they were wrong?

    1. Scott–was originally 5%, but is now 7%–damned if I can remember the circumstances. From the 10-Q

      Dividends on each share of Liberty Broadband Preferred Stock accrue on a daily basis at a rate of 7.00% per annum of the liquidation price.

  2. Lot of good comments from people who have clearly done their homework on this issue and understand it.

    I didn’t do the deep dive (can’t be everywhere!) but do and have relied upon comments here. Issues that take a lot of time to figure out often provide a bit of “free” yield.

    Hope to see it back at 26 at some time, or at least 26.50.

  3. I recently bought the Liberty Media SPAC and saw that Greg Maffei would be speaking. I listened to part of the discussion and he basically said that the end game is for Charter to acquire Liberty Broadband. He also mentioned that Liberty has tendered shares to Charter and then bought back Liberty Broadband has they are trading at a discount of 18% which they believe is value additive. Hope I am getting the details right, there are alot of Liberty tickers.

    Here is the discussion, liked from Liberty Media IR.
    https://wsw.com/webcast/mn13/lmca/1510691

  4. Thanks guys for doing all the heavy lifting on this issue. Much appreciated. Have a great weekend.

  5. Tim – Not knowing anything about this issue other than what’s written here, if it has a mandatory redemption date of 3/8/2039 and is noncallable, why wouldn’t yield to maturity be the more relevant yield calc instead of current yield? YTM at 27.23 is about 6.17% not taking into account accrued since I don’t even know what payments are made..

    1. 2wr–agree–YTM is a relevant factor—for me, personally, I worry more about YTM say 5 years from the maturity date–just me – as I have watched markets (investors) ignore the maturity dates until closer into that date meaning that the drift back toward $25 occurs late in the time frame.

      1. Agreed. You’re not just playing against YTM you’re also playing against other investors. YTM doesn’t mean much to them when it’s 18 years out. I wouldn’t expect much drift toward par any time soon unless there’s some other reason for a price drop.

  6. “Liberty has assets of over $20 billion with liabilities of $7.6 billion”

    True, but aren’t CHTR’s liabilities structurally senior to Liberty’s and thus those liabilities (and assets) should be considered as well?

  7. Happy Memorial Day, everyone.

    Take time to think about those who fought for our freedom but didn’t come back…

  8. I own some in my non-trading account, probably because of comments here but my memory is hazy. Good divdend, biggest concern is the cable tv market could look a lot different in 10 years.

  9. By definition, seems it is a subordinated debenture character of preferreds with a long term maturity. Annuity structure hold material, if you believe in the company for 20 years, meaning don’t get spooked if and when rates go up just spend it out for 18 years. I used to call these a Rip Van Winkle holdings. This is a tough time to build out a structure like that with confidence now. At first glance it looks like a possible building block.
    Eventually, there always seems to be some clause and wrangling with insiders, let alone technology shift, that’s why the par consideration is a friend of the holder. So is protect your principal. May be this will be one of those stranded issues like the ones Gbird discusses from the era of last interest rate nadir?
    I might put it on an open buy? or watch during a debacle?

  10. I recommended LBRDP here a few months back at $ 27.16. Price has been as low as 26.38, but has since rebounded. I’ve collected one dividend and LBRDP will go ex again next month. I continue to hold and added some on the dip. Hard to find an issue with the characteristics Tim detailed above.

    1. RetiredBroker–yes I watched you folks discuss for some time–heck I want every ones ideas.

  11. Quite interesting! No early redemption, and almost 18 years for mandatory. So does that mean you’re reconsidering your “III Rating: C” ? 🙂

    1. I own it in size and like it. Will throw out one risk: LBRDA is controlled by John Malone and mostly owns CHTR stock. LBRDA trades at a discount to the value of its CHTR stock, and always has. The end game here is for CHTR and LBRDA to merge, which collapse these two entities and eliminate the discount in LBRDA. When this happens, they likely have an opportunity to redeem LBRDP, under a change of control, and I assume they will, since CHTR has a much lower cost of capital (issuing very long term bonds at 4%+ rates I believe). Therefore, one should contemplate the yield to an early call at $25 in whatever period you think this may happen, perhaps in a couple of years.

      1. JD–I think you are likely correct–or if they simply spin off operations and liquidate the rest they could call it.

      2. JD, It is possible. But I cant dig to know for sure as I havent seen the real prospectus as it was a freebee like QRTEP was.
        A change of control does not mean necessarily it can be redeemed. If its noncallable it could be just that. Look at PPWLM, CTGSP, and BANGN for example. They have been bought out multiple times and cannot redeem them. All they could ever do was offer tenders and that never eliminated the float.
        But either way I will take my chances my cost basis is around 26.50 so if it happens so be it.

        1. From my notes after reviewing the documents when this was GLIBP: “in any merger or consolidation, which merger or consolidation by its terms provides for the payment of only cash to the holders of shares of Series A Preferred Stock, each holder of shares of Series A Preferred stock shall be entitled to receive an amount equal to the Liquidation Price of the shares of Series A Preferred Stock held by such holder, plus an amount equal to the accrued and unpaid Dividends.”

          Agree with comment that this is basically a preferred of CHTR. Only real credit risk would be if some new technology replaces cable as primary mode of broadband connectivity. In theory, fixed wireless 5G has a chance. But, clearly a very long road there.

          The endgame here, in my opinion, is that CHTR will acquire LRBDA for CHTR stock — so Liberty Common shareholders will receive CHTR common. That consolidates Malone’s direct control over CHTR and eliminates the discount. Merging GCI Liberty into Liberty Broadband was a step towards this. Will they leave this preferred issue outstanding? Its immaterial to CHTR so maybe they will leave it alone, but it probably makes economic sense to redeem it, when the time comes, given CHTR has a much lower cost of capital.

          1. Good info JD, thanks for sharing. It survived one merger but maybe not that one if it occurs. Im no expert here, but wouldnt there have to be a discount of enough value in Libertys stock in relation to Charters to warrant a buyout?

    2. Its is my second biggest holding. Its basically a preferred stock of Charter. In fact if Libertys stock sagged enough below value of Charters, I bet Charter would take it over.
      It rates B but there are so many Malone levers here, I dont worry about it as long as Charter is doing fine.

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