New York, September 04, 2012 -- Moody's Investors Service assigned Starz, LLC (Starz) a Ba2 Corporate Family Rating (CFR), Ba2 Probability of Default Rating (PDR), and Ba2 rating to the company's proposed $500 million senior unsecured notes due 2019 as well as a SGL-1 speculative-grade liquidity rating. Starz plans to utilize the net proceeds from the proposed notes to retire a $500 million term loan that was part of a new unrated $1.5 billion credit facility established in November 2011. Starz plans to utilize existing cash and a drawdown under its $1 billion revolver to fund a $1.8 billion distribution to Liberty Media Corporation (Liberty). The distribution will occur in conjunction with Liberty's plan to separate Starz from its other assets (including its nearly 49% interest in Sirius XM) in a tax-free spin-off that is expected to close in late 2012 or early 2013. Starz had approximately $1.1 billion of cash as of June 30 and approximately $400 million of the distribution has been made in advance of the spin-off. Prior to the November 2011 credit agreement, Starz carried only a modest external debt balance (less than $50 million of transponder leases), other than inter-company debt. Accordingly, these transactions will result in a significant increase in Starz's debt and leverage. The rating outlook is stable.

Assignments: ..Issuer: Starz, LLC....Corporate Family Rating, Assigned Ba2

....Probability of Default Rating, Assigned Ba2

....Speculative Grade Liquidity Rating, Assigned SGL-1

....Senior Unsecured Regular Bond/Debenture, Assigned a Ba2, LGD4 - 52%

Outlook Actions: ..Issuer: Starz, LLC ....Outlook, Assigned Stable RATINGS RATIONALE Starz' Ba2 Corporate Family Rating (CFR) reflects the company's good cash flow generated from its family of premium cable networks, technology-driven long-term risks associated with the premium cable network business, heavy supplier/distributor concentration, moderate leverage, and event risks related to substantive control by John Malone. Moody's believes the company will continue to generate good cash flow over the intermediate term supported by movie output deals with Sony and Disney and an increase in original programming investment, but long-term business risks and Dr. Malone's substantive control warrant a speculative-grade rating. Liberty is separating Starz in part to provide better opportunities to pursue its strategic objectives including creating a currency that could be used for acquisitions. Starz could be an acquisition target as there are relatively few stand-alone cable networks remaining with modest scale such as Starz, although a stand-alone Starz could itself be an acquisition platform. This along with the potential to utilize debt to fund share repurchases creates event risk.

Starz's 3.0x or lower target debt-to-OIBDA leverage (company definition), positive projected free cash flow and very good liquidity position the company at the upper end of the speculative-grade rating scale. Starz will initially be below its leverage target (2.8x pro forma LTM 6/30/12) and Moody's expects incremental cash generation to be used to reduce the size of the initial revolver draw (relative to the pro forma 6/30/12 amount) and leverage by roughly 0.3x by the time the spin-off closes. Debt-to-EBITDA incorporating Moody's standard adjustments and programming costs on a cash basis (3.3x LTM 6/30/12 pro forma for the transaction) would be roughly 3.5x at the company's target leverage level. Moody's expects Starz will manage to its leverage level over time with share repurchases and acquisitions potential uses of incremental debt subsequent to the spin-off. Moody's believes Starz has sufficient free cash flow to manage to its leverage target.

The SGL-1 speculative-grade liquidity rating reflects Starz's very good liquidity position supported by its predictable free cash flow generation, a modest cash balance (approximately $25 million pro forma for the proposed transaction) and no required debt payments until the revolver matures in 2016. Moody's anticipates Starz will generate free cash flow exceeding $150 million over the next 12 months. Unused capacity under the $1 billion revolver (approximately $300 million pro forma 6/30/12 likely increasing to roughly $475 million by the time the spin-off closes) provides additional liquidity support, although Moody's does not expect Starz to be reliant on the facility aside from potentially using to fund lumpy programming payments. Moody's expects Starz will maintain a meaningful EBITDA cushion (greater than 25%) within the financial maintenance covenants (which are based only on Starz Entertainment's OIBDA), with flexibility to reduce debt and covenant cushion should EBITDA fall.

The Ba2 rating and LGD4 - 52% assessment on Starz's proposed $500 million senior notes reflects the guarantee from Starz Entertainment, LLC (SEL). Starz plans to establish a new finance subsidiary, Starz Finance Corp., that will be a joint and several co-issuer of the notes. Starz's $1 billion revolver has the same guarantee from SEL but also a pledge of the stock of SEL and Starz, LLC. Because Moody's believes the stock pledge is a weaker claim than the guarantee, a 100% deficiency claim is utilized for the revolver in Moody's loss given default model.

The revolver and notes are thus viewed as having similar claims at present, which results in the notes being rated equal to the CFR. However, the credit facility contains maintenance covenants (not present in the notes) that could improve the recovery prospects relative to the notes. Maintenance covenants provide bank lenders an ability to modify the credit facility terms, which could result in repayment of the bank debt and/or higher interest margins as a condition to amending the facility. The note indenture also allows Starz to pledge collateral to a credit facility up to an amount equal to the greater of $1.5 billion and 3.0x secured leverage. An actual or potential difference in the collateral position, or other provisions that could drive a meaningful difference in recovery for the notes relative to the credit facility and lead to a lower rating.

The stable rating outlook reflects Moody's expectation that Starz will maintain access to high quality programming for the next 12-24 months, steadily increase its original programming investment, and maintain and renew distribution agreements with multichannel video suppliers near current economic terms such that revenue and earnings are stable or growing over the next two years. Moody's also anticipates in the stable rating outlook that Starz will manage to its 3.0x target leverage level.

The ratings are currently constrained by Starz's target leverage and the long-term business risk. However, maintaining access to high quality content and sustaining distribution agreements such that revenue and earnings grow notwithstanding technology-driven changes in the television industry, along with debt-to-EBITDA sustained below 2.25x and free cash flow-to-debt sustained in a high teens percentage range or better could lead to an upgrade. Starz would also need to maintain a good liquidity position and be able to absorb any event-driven transactions within the aforementioned credit metrics to be considered for an upgrade.

Starz's ratings could be downgraded if it does not maintain cost-effective access to high quality programming. This could occur if it is unable to renew studio output deals at reasonable terms, find replacement programming that appeals to consumers in the event an existing studio output deal is not renewed, or if its original programming strategy is not successful. Adverse changes in distribution agreements could also create downward rating pressure. Starz could also be downgraded liquidity deteriorates, or if it does not adhere to its stated financial policies and leverage target, completes acquisitions, or distributes cash to shareholders or acquisitions such that debt-to-EBITDA is not maintained in a low 3x range or lower or free cash flow-to-debt is not sustained comfortably above 10%.

Please see the credit opinion at www.Moodys.com for additional information on Starz's ratings.

The principal methodology used in rating Starz is the Global Broadcast and Advertising Related Industries Methodology published in May 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.Moodys.com for a copy of these methodologies.

Starz, headquartered in Englewood, Colorado, supplies television and movie programming to U.S. multichannel video distributors including cable, direct broadcast satellite, and telecommunication service providers. Primary operations consist of the Starz and Encore premium cable networks. Starz Media operates home video and theatrical distribution businesses as well as other programming-related services including managing for a distribution fee the ancillary revenue and expenses of Starz's original programming content. Revenue for the 12 months ended June 2012 were approximately $1.6 billion.

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John E. Puchalla VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653John Diaz MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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