NBCUniversal's $2B New Senior Notes

Includes: CMCSA, GE
by: Charles Margolis

Early last year, Comcast (NASDAQ:CMCSA) closed a deal with General Electric (NYSE:GE) to acquire 51% of NBCUniversal. General Electric retained a 49% stake in the multimedia powerhouse.

Last week, NBCUniversal Media LLC issued $2B in new corp. bonds. They are rated Baa2 by Moody's. NBCUniversal issued $1B in notes due in 2023 and $1B due in 2043.

Please note at least one major secondary bond market falsely lists the NBCUniversal 2023 bonds as call protected. The prospectus states, "The 2.875% Senior Notes due 2023 are redeemable at the option of the Company at any time..." (I called the group with the erroneous listing to inform them.)

credit rating price yield
Nbcuniversal Media LLC Sr Nt 2.875% 2023, Make Whole Call (cusip: 63946BAH3) not call protected, sinking fund protection* Baa2/- 100.82 2.78%
Nbcuniversal Media LLC Sr Nt 4.45% 2043, Make Whole Call (cusip: 63946BAJ9) not call protected, sinking fund protection Baa2/- 101.50 4.36%
Comcast Corp New Nt 3.125% 2022, Make Whole Call (cusip: 20030NBD2) not call protected, sinking fund protection Baa1/BBB+ 104.73 2.57%
Comcast Corp New Nt 7.05% 2033, Make Whole Call (cusip: 20030NAC5) not call protected, sinking fund protection Baa1/BBB+ 136.11 4.36%
General Electric Capital Corp Fr 5.25% 2034, Survivor Option (cusip: 36966TCP5) call protected, sinking fund protection A1/AA+ 108.55 4.62%
General Electric Capital Corp Fr 4.5% 2021, Survivor Option (cusip: 36966TAY8) call protected, sinking fund protection A1/AA+ 112.12 2.98%

*Sinking fund protection indicates the Corp. bonds are not listed as having sinking fund redemptions prior to maturity. Please double check call and sinking fund features with a broker before considering bonds.

Notice that General Electric Capital Corp. bonds appear to offer the best credit quality and yield. However, as I will show below through an examination of debt to equity ratio, diversification is worth considering to balance risk.

NBCUniversal's 2011 annual report can be found on Comcast's website. It lists an increase in interest payments from 2009 - 2011:

2011 2010 2009
NBCUniversal Payments of Interest (445)M (275)M (105)M

The report explains:

The increase in interest payments in 2011 and 2010 was primarily due to the issuance during 2010 of our $9.1 billion of senior debt securities.

Overall long-term debt increased from $9.09B to $9.61B from 2010 to 2011. Comcast's SEC filing for NBCUniversal's new $2B issue states:

The Company intends to use a portion of the net proceeds from this offering for the redemption on November 15, 2012 of the Universal City Development Partners, Ltd. and UCDP Finance, Inc. (together, " Universal Orlando ") 8.875% senior notes due November 2015 ($260 million principal amount outstanding) and 10.875% senior subordinated notes due November 2016 ($146.25 million principal amount outstanding). The Company intends to use the proceeds in excess of the amount used to redeem the Universal Orlando notes for working capital and general corporate purposes, which may include funding a portion of the anticipated future redemptions of GE's interest in NBCUniversal, LLC.

Debt To Equity

Investors interested in some exposure to NBCUniversal might consider a mix of NBCUniversal senior notes, Comcast, and GE Corp. bonds in addition to Comcast and GE stock.

However, it is important to keep in mind that currently, interest rates are low. Clearly, the GE bonds yield more and are rated better, however, they are not without risk. Let's look at GE and Comcast's debt to equity ratio:

(click image to enlarge)

GE Debt to Equity Ratio Chart

GE Debt to Equity Ratio data by YCharts

While GE's ratio has trended down, it is still massive compared to Comcast's.

Here is an example portfolio that mixes callable and call protected bonds with Comcast and GE stock:

Portfolio Size NBCUniversal 2.875% 2023 Comcast 3.125% 2022 / Comcast Stock GE 4.5% 2021 / GE Stock Total / %
$100,000 $1,010 0 / $150 $2,250 / $250 $3,660 / 3.6%
$1M $3,030 $2,100 / $250 $5,700 / $500 $11,580 / 1.1%

Notice this example does not include any of the longer term corp. bonds. This example also favors the call protected GE bonds, however keeps the allocation size low.

The $100,000 portfolio should generate $28.75 + 2($45) = $118.75 a year in fixed income. The $1M portfolio should generate 3($28.75) + 2($31.25) + 5($45) = $373.75.

In order to complete the example strategy, consider a template schedule:

2013-2015 After 3 semi annual coupon payments invest in an income fund.
2015-2017 After 3 semi annual coupon payments invest in an income fund.
2017-2019 After 3 semi annual coupon payments invest in an income fund.
2019-2021 After 3 semi annual coupon payments invest in an income fund.
2021-2023 After 3 semi annual coupon payments invest in an income fund.

As you can see, this is a basic example. The guiding principle is not to put all of your eggs into one basket.

Many Seeking Alpha readers like to comment about inflation and the fact that when rates go up, the bond prices will go down. This is true, however, a small allocation to fixed income may be able to create a mechanism to invest further by generating some cash. If you have any thoughts pertaining to NBCUniversal, Comcast, and GE, please add a comment below.

This article is not a recommendation to buy or sell. It is important to consult a financial advisor in order to determine a proper allocation (if any) for your own objective.

Disclosure: I am long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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