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Time Warner Completes Debt Exchange

Time Warner Inc. said that it has successfully completed its consent solicitation to allow it to exchange debt currently on its AOL division's book to its Home Box Office unit, a move that many see as a possible first step in spinning off the troubled online company.

In a statement late Thursday, Time Warner said that the consent solicitation was successful and that it would exchange $12.3 billion in debt to HBO. In earlier filings, Time Warner said HBO had 2008 revenue of about $3.7 billion and assets valued at about $11.1 billion.

When Time Warner proposed the exchange earlier this month, most observers saw the exchange as a first step in spinning off AOL because the debt involved in the exchange includes covenants that would make it prohibitive for Time Warner to spin off or sell the assets. With the swap, those covenants are removed.
As an incentive to debtholders to consent to the exchange, Time Warner offered them $5 in cash for every $1,000 in debt securities they held. That worked out to be roughly $61.5 million.

Time Warner has struggled for years to get the AOL unit back on track, switching to an advertising model from a subscription model in 2006. In August, chairman and CEO Jeffrey Bewkes proposed splitting out the dial-up access business, a move that he said could be completed in early 2009.

In mid-March AOL hired former Google senior vice president Tim Armstrong to head up the struggling unit, which fueled speculation that some sort of deal was in the works.