Judge Rules Against Paxson in NBCU Fight

May 3, 2005  •  Post A Comment

Paxson Communications was dealt a legal setback last Friday when a Delaware judge ruled that the interest on NBC Universal’s 32 percent stake in Paxson has been accruing at a rate of 28.3 percent, versus the 8 percent rate that Paxson had argued. The ruling could mean that Paxson is on the hook to pay as much as $700 million to repurchase NBCU’s interest in the beleaguered broadcaster.

However, both Paxson and NBCU are still awaiting the judge’s ruling on whether Paxson must buy back the NBCU stake in the first place.

The annual interest rate at which the value of NBCU’s stake grows has been a major bone of contention between the two companies for months. Paxson enlisted investment bank CIBC World Markets to determine the annual interest rate at which NBCU’s original $415 million investment in Paxson grows. CIBC came up with a figure of 8 percent, which amounts to around $33 million per year. NBCU challenged that determination in court, and the judge ruled the interest rate was more than three times the CIBC rate, which translates to around $117 million a year.

Based on last week’s court ruling, NBCU’s stake will be worth around $700 million by the end of the year.

Whether Paxson has to pay that amount remains an open question, however. The court is still deciding whether Paxson is obligated to heed NBCU’s request.

NBCU argues that Paxson must pay NBCU for the stake, but Paxson has asserted that it is not required to do so. Also, Paxson has noted that paying NBCU for the stake it would violate bank loan terms.