Liberty Broadband (LBRDA and LBRDK) is a company that has been mentioned in some comments the last few days–and has been discussed frequently by investors on this site.
Liberty Broadband is really a company that exists to hold a 26% stake in cable giant Charter Communitcations (CHTR). They have only GCI Liberty (the largest communications company in Alaska) as an operating unit generating around $1 billion in revenue per year–honestly this is almost meaningless to Liberty.
The story of Liberty Broadband and how they came into existence and why they hold a large share of Charter is a story of mergers, combinations, spin offs and de-mergers. It gets very complicated and I can’t even begin to tell the story–one best go the Liberty Broadband website.
Moving along to the 7% cumulative preferred stock from Liberty Broadband (LBRDP). This preferred stock came into existence when Liberty Broadband merged with GCI Liberty which had preferred stock outstanding.
The registration statement for this preferred can be found here. You will especially note the following items in the registration statement. These are key provisions in the statement.
- Liberty Broadband is required to redeem all outstanding shares of Liberty Broadband Preferred Stock out of funds legally available, at the liquidation price plus all unpaid dividends (whether or not declared) accrued from the most recent dividend payment date through the redemption date, on the first business day following March 8, 2039.
- The certificate of designations does not provide for optional redemption of shares of Liberty Broadband Preferred Stock prior to the redemption date.
Obviously these items are not all inclusive so one would do well to read the information for themselves in the registration statement. Essentially these shares are ‘term’ preferreds–although the term is longer than those from Eagle Point Credit, Oxford Credit etc.
So what we have here is a 7% coupon, a current yield of 6.48% and a yield to worst of 6.01% (at todays price of $27). In these days of rising rates this remains a pretty solid income vehicle—this is an investment grade security–NO it is NOT rated as such, but let us take a look at the balance sheet of Liberty Broadband.
Below is the balance sheet of Liberty Broadband and you can see there are $17 billion in assets versus $7 billion in liabilities—very solid. BUT the balance sheet doesn’t tell the whole story. You see the investment in Charter Communications is by far most of their assets–you can also see that that investment is carried on the balance sheet using the ‘equity method’ of accounting. Is the equity method ‘fair value’? NO–the actual value of the Charter Communications shares is $35 billion (as of 12/31/2021). So instead of $17 billion in assets versus $7 billion in liabilities it is more like $35 billion in assets against those $7 billion in liabilities. KEEP IN MIND THAT CURRENTLY THE CHARTER STAKE IS LESS SINCE THE SHARE PRICE IS OFF SINCE 12/31.
Now, as always, I don’t recommend folks run out and buy these preferred shares—but I do recommend that folks do their due diligence if a solid 6.48% seems like a decent yield. Also being mandatorily redeemable the share price is more stable that a perpetual issue.
12 thoughts on “Take a Peek at Liberty Broadband Preferred Stock”
Still looking for lower pricing Tim. In this environment investment grade fixed income is ripe for further price decreases.
This is a hard one to noodle. Yes, the balance sheet looks great. But, Charter Communications is Ba1/BBB-. If Charter Comms goes bankrupt, then Liberty is also bankrupt. So, you definitely can’t say that Liberty’s rating should be anymore than Ba1/BBB- (making the Liberty preferreds Ba3/BB). But in reality, Charter doesn’t have to go bankrupt for Liberty to go bankrupt. If Charter gets downgraded to CCC, probably the Charter stock price will go low enough to bankrupt Liberty.
The caveat you could say is that Liberty could sell their Charter stock if they see it going downhill to avoid bankruptcy. That’s what they would do if Liberty was an arms-length third party with an investment in Charter stock. However, in reality, it’s doubtful they would do that and Liberty would go down with the mothership.
This is a note on this site from JD in May, 2021 about early redemption of LBRDP. I wonder if it is correct:
05/28/2021 at 1:15 pm
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.
Thanks for this.
I know that it is pretty standard for preferred stock terms to allow an early call when there is a change of control. However the certificate for LBRDP provides that:
5. Protective Provisions.
(a) In addition to any vote required by this Certificate of Designations, the Restated Certificate or by applicable law, for so long as any of the shares of Series A Preferred Stock shall remain outstanding, the Corporation shall not, without the written consent or affirmative vote of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be), separately as a series:
(i) amend, alter or repeal any provision of this Certificate of Designations, whether by merger, share exchange, consolidation or otherwise, in a manner that adversely affects the powers, preferences or rights of the Series A Preferred Stock set forth in the Restated Certificate (including this Certificate of Designations) (including, without limitation, any such amendment or alteration that would reduce the Liquidation Price or Dividend Rate of the Series A Preferred Stock), unless in each such case each share of Series A Preferred Stock (x) shall remain outstanding without a material and adverse change to the powers, or rights of the Series A Preferred Stock or (y) shall be converted into or exchanged for preferred stock of the surviving entity having powers, preferences and rights substantially identical to that of a share of Series A Preferred Stock (except for any changes to such powers, preferences or rights that do not materially and adversely affect the Series A Preferred Stock and, if permitted by law, the payment of cash in lieu of fractional shares)
I interpret this to mean that LBRDP would not be subject to early call without the consent of a majority of the LBRDP holders. Is there a different interpretation?
I think the change of control is in (c), just below where you quoted. It seems quite clear to me, even though CoC is not explicitly mentioned:
(c) 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 (whether or not declared) on such shares since the immediately preceding Dividend Payment Date, in exchange for such shares of Series A Preferred Stock.
There has been periodic chatter, if price of Charter and Liberty vary enough in the manner needed, Charter could “buy out” Liberty as a backdoor method to buy back their stock on the cheap. Management has mentioned this before, though not in a time mannered fashion. So that has given me pause here since that was brought up here a year or so ago.
I saw that too. But how does that apply in a way that would not be inconsistent with part (a)? Possibly that such payment could only be after approval by LBRDP holders? I don’t know.
In any event, I think now that the points LI raises are a more substantial consideration.
Nh, I am reading that part to basically be saying the preferred is being protected from being watered down, or “Wheelered” on being acquired. It sure appears to me if Charter wanted to take out the preferred at acquisition they could. Of course that doesnt mean they would even if that ever would happened.
As you can tell this issue was left outstanding from the first sister merger from GLIBP to LBRDP.
Thx. Another matter. As CHTR does not pay a dividend, it seems like the only way that LBDRA can service its debt and pay the preferred dividends is to sell off bits of its CHTR holdings from time to time. I guess as long as they will do that it’s OK, but is that also a potential problem?
Odd story with this one. It used to be GLIBP, when it was GCI. And it had a provision that changed it from a 5% issue to a 7% several years later. I caught that and bought it up before it went to 7%. It survived the 2020 rout very nicely. I dont own it now, but am watching it as always. There never was an IPO with this issue. It was given to shareholders for some reason, I long ago have forgot.
Here is a funny one CHSCO and CHSCP. They both are redeemable (in this case for the second time with CHSCP) next year. Only 12.5 bps difference in yield. The 7.875% CHSCO is now $26.35 while the 8.0% CHSCP is still $31.90. This is crazy! CHSCP is largely owned by the original old timers. It trades like they will get another 10 year protection again. This is crazy. Its not like its totally illliquid as 10,000 shares traded today, unchanged today and UP 3.5% YTD. CHSCO is down 7% YTD.
Tim.. Nice overview.
Thanks Lucky–kind of brief, but just an intro