Last point(s), sorry my mind can’t let it go so I do have something to add. I believe your understanding of the DTL is incorrect and thus the conclusion you are making is likely incorrect. The debentures in reference were issued as OID meaning they were issued at a discount. This accretion allows Liberty and QVC Group to deduct in the current period which directly benefits them TODAY and gives a boost to FCF. Their own investor deck dubbed them as “allows for tax deductions in excess of cash coupon (imputed interest due to exchangeability)”. The accretion also creates a corresponding deferred tax liability which is the DTL on the balance sheet we all see for QVCGA.

They are directly getting the real benefit of this via the tax shield they generate which will be significant by 2028. The deduction benefit will be enough by maturity to offset half the DTL as their own investor deck states:

“Disallowed interest in current and future years results in significant deferred interest carryforward by 2030 which should offset almost half of gross DTL at maturity”

The 10-K states:

“A substantial portion of our consolidated debt and other liabilities is held above the operating subsidiary level, and we could be unable in the future to obtain cash in amounts sufficient to service those liabilities and our other financial obligations. As of December 31, 2024, our wholly-owned subsidiary LI LLC had $1,570 million principal amount of publicly-traded debt outstanding. In addition, as of December 31, 2024, we had deferred tax liabilities of $1,136 million related to LI LLC’s exchangeable debentures…..Additionally, in the event all reference shares underlying a series of exchangeable debentures are liquidated or otherwise cease to be outstanding without replacement, there is a possibility that the treatment of tax matters associated with that series could change. This may include acceleration of tax liabilities that are recorded as deferred tax liabilities in our financial statements, in amounts that would be significant”

The use of IRS 108 to claim insolvency would work on the early retirement of these debentures as the difference between the adjusted price and repurchase price would create CODI which is income but the DTL is a separate issue. The DTL is GAAP recorded and based on timing differences but it does reflect a legit difference in tax timing benefits they already used. So if these debentures went away tomorrow the company could attempt to use IRS 108 (no guarantee they don’t get audited after and your one example prior isn’t guarantee for other uses cases either) for the CODI BUT keep in mind to use 108 they have to reduce all their tax attributes too so this basically kills the same attributes they planned on to take out half that DTL at maturity in 2029/2030 too.

I vehemently disagree with the narrative these won’t be an obligation if taken out early. I do not believe the full $1,138M is going to be some cash outflow but a good chunk of that could be and if they use the IRS 108 they will have to use their assets they need to take care of the DTL. The way I think of this, in a crude way, is almost as they borrowed from the government to get a benefit today and will have to pay that benefit back in some form but they’ve already used it that benefit.

At maturity they will either use the tax assets they have or pay in cash or take some other hit, but if they use IRS 108 for CODI that impacts those same tax assets which likely then makes the DTL a real point for cash leakage.

The 10-K also states on the assets:

“As of December 31, 2024, the Company had a deferred tax asset of $594 million for net operating losses and interest expense carryforwards. If not utilized to reduce income tax liabilities in future periods, $375 million of these loss carryforwards will expire at various times between 2025 and 2044. The remaining $219 million of losses and interest expense carryforwards may be carried forward indefinitely. These carryforwards are expected to be utilized by the Company, except for $416 million which, based on current projections, will not be utilized in the future and are subject to a valuation allowance.

As of December 31, 2024, the Company had a deferred tax asset of $101 million for foreign tax credit carryforwards. If not utilized to reduce income tax liabilities in future periods, these foreign tax credit carryforwards will expire at various times between 2026 and 2034. The Company estimates that $82 million of its foreign tax credit carryforward will expire without utilization and are subject to a valuation allowance.”

And given the current period tax benefit to cash flows I think you underestimate how negative this will be viewed by OpCo lenders. The reason being if I am OpCo lender and a tax shield the parent had is gone that just means even more of the OpCo cash is relied upon now. There is now going to be more cash outflow via higher taxes somewhere and it creates uncertainty at a time lenders don’t need that. And the HoldCo would have used cash to potentially downstream and protect it’s asset if needed. I suppose my challenge back would be what’s the economic offset of not paying the debenture interest expense vs. losing the tax shield? Especially since these have almost 0 impact on OpCo leverage ratio, interest payments, or anything else at OpCo.

While everyone believes an LME is the likely path I believe whatever hopes there left a bit ago. In Nov-Dec the company was starting talks with the banks on an A&E and specifically stated to expect an update by Q1-Q2 2025. By that period we had no update which should have been the first red flag. Next the company drew on the revolver for $75M and then an after period draw of $975M putting the banking syndicate, who could have done a simple A&E, into a worse economic spot as all the lenders for OpCo are pari passu and there isn’t enough EV to cover what was already there. Banks knew the company would have to add going concern language and let that happen too. Why? Now I did call on SI in September this could be a tactic by the banks to gain some timing control but it’s not a great message and for sure not one you see for a banking A&E because “TikTok”.

OpCo then went and restated their own by-laws and brought on two board members themselves who are both basically corporate Undertakers, brought on two restructuring heavyweights at the parent level too. Then management cashed out all their stock packages to get cash today. Why? If an LME or some IRS 108 move was on the table why go through all of these costly events?

My current analysis on TikTok does not show the most promise yet. Again if they do $150M this year with a 11% EBITDA margin + factoring for a return rate of 14.5% then this is $14.11M EBITDA impact and MAYBE $7.76M to core cash flow before WC adjustments. Given the growth of TiKTok is comnig directly from OPEX and not CAPEX I find it unlikely EBITDA margins improve but happy to be proven wrong. Even if this scaled to $450M we’re looking at $42.32M EBITDA impact and maybe $23.28M to core cash flow. Also no telling if this is all pure gain either because it could be eating away cable customers. From what I am reading the competition on TikTok isn’t just “QVC is the only one that can do this” as there’s literally reports of numerous businesses growing on the platform which makes me think this really is a pay-to-play environment. Then you throw in the cable loss at the same time.

Perhaps I am wrong on the DTL, but also perhaps I am not either. I think there are too many things that need to go right for equity to make sense in 2025-2026. Likely a play in the OpCo bonds which is why I watch still. I do hope it works out for you and the rest though. I was one very bullish on QVC, but those days are behind now.