For vulture investors like Carl Icahn, Charlie Ergen, Carlos Slim and John Malone, media debt is a siren song. They are buying up media companies' debt not to save struggling companies, but
instead to generate high yields, to have a voice in a potential bankruptcy or to gain control of a company on the cheap.
Malone, the head of Liberty Media, was primarily looking to capture the hundreds of millions in tax credits gained from inheriting Sirius XM Satellite Radio. Slim's New York Times investment, which carries a steep 14% interest rate, simply offers too rich a return to pass up.
Media-focused private-equity firms and hedge funds like Zelnick Media are attracted to media debt buys because the risk is low compared with the potential reward. These investors divide the media world into two buckets: highly leveraged, advertising-dependent radio, TV and newspapers, and in the second bucket, companies that produce steady cash flow, such as cable companies. But some private-equity managers are wary of the trend. "Historical precedents may not hold up under the strain of where the economy is going," warns one.