• Bloomberg News, Monday, June 1, 2009 11:31 AM

Time Warner's AOL, which will soon be spun off to become a standalone public company, may take on debt because it has "very healthy" cash flow, Time Warner CEO Jeffrey Bewkes says. "Theoretically it could support some debt," Bewkes said last week during an investor conference in New York. The company's capital structure won't be decided until terms of the separation are complete, he said.

In a research note, Michael Morris, an analyst with UBS AG, said AOL could assume at most $1.5 billion in debt because its leverage shouldn't exceed Time Warner's, especially when cash flow from subscribers is declining and the recession is limiting its short-term advertising prospects. Time Warner ended the first quarter with $10.4 billion in net debt.

Last week, the media giant announced its plans to spin off AOL, although the U.S. Securities and Exchange Commission could take a few months to approve the separation. Meanwhile, new AOL CEO Tim Armstrong is keeping all of his options open in his bid to revive the company's flagging sales. According to a Bloomberg source, Armstrong will probably place AOL's recently acquired businesses, including the social network Bebo and the search engine Truveo, into separate ventures that can attract outside investments.

Some analysts are skeptical. "I won't say they've tried everything under the sun but most of the ideas that could be found have been tried," Jeffrey Logsdon, an analyst at BMO Capital Markets, told Bloomberg. "It's not readily apparent that there's a simple or easy solution to the challenges AOL faces."

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