Hallmark to greet TV unit with $400 mil

Cash to help improve liquidity, reduce interest costs

Hallmark Cards has agreed to infuse its publicly traded TV unit, Crown Media Holdings Inc., with $400 million in the form of unsecured debt. Crown said it is using some $330 million of those proceeds to buy back Crown Media Trust preferred stock and use the rest to pay expenses and reduce the balance of its revolving bank credit facility.

Describing the investment as evidence of Hallmark Cards’ “continuing commitment to Crown Media,” Crown prexy and CEO David Evans said the new cash will help improve company’s liquidity and reduce burdensome interest costs while taking advantage of more favorable rates in the current lending climate.

The note does not require any cash interest payments for four years and matures on August 5, 2011.

Options eyed

A special committee of the Board of Directors of Crown Media had considered alternative debt financings to raise the funds for the same purposes. In connection with the issuance of the note, Crown Media has obtained necessary amendments to its bank credit facility.

Crown’s stock price has lagged in the last year, under pressure to operate profitably with only a single national network. The company undertook heavy cost-cutting efforts globally in the last 12 months to staunch the flow of cash and work toward profitability.

Hallmark Channel has been spending heavily on programming to boost ratings. In May, channel’s prime time ratings were up 42% over the year. In addition to production of a monthly TV movie, channel has also invested heavily in movies, including a bulk deal from Disney and picked up several new off-network series like “JAG” and “Touched by an Angel.”

In the first quarter ended March 31, Crown posted a loss of $5.9 million of sales of $42 million. Company reports second quarter earnings on August 14.

Company has long been considered a likely takeover target by a larger cable programmer, but Hallmark Cards is thought to be loath to sell at a loss or its current $4.30 per share trading value.