UPDATE 2-IAC debt holders reject tender offer - attorney

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NEW YORK, June 13 (Reuters) - Debt holders have rejected a tender offer by Internet conglomerate IAC/InterActiveCorp (IACI.O), saying its plan to spin off assets violates terms of its debt, an attorney representing debt holders said on Friday.

IAC said on June 11 it had begun a tender offer to repurchase its 7 percent senior notes due in 2013 and was seeking approval to amend terms of the notes and eliminate restrictive terms.

"The noteholders were extremely disappointed with the terms of the tender offer and consent solicitation," Kris Hansen, a partner with Stroock & Stroock & Lavan, said in a statement. The law firm said it represents more than a majority of the holders of the 7 percent notes due in 2013.

IAC's intent to spin off substantially all of its assets while leaving the senior notes behind violates the terms of its borrowing agreements, Hansen said.

IAC is preparing to spin off four of its largest business units and focus on its faster-growing web media and advertising properties.

A spokesman for IAC could not be reached immediately for comment.

IAC's offer to debt holders is "low-ball" compared to what the terms of its borrowing agreements would normally require, fixed-income research service CreditSights said in a report on Thursday. If debt holders do not agree to amend restrictive terms, they could challenge the company's plan to spin off the units.

"Based on current rates and our calculation, the offer looks barely above the trading price of IACI's 2013 bond as of June 6," CreditSights said. "The spread suggests to us that IAC/InterActive thinks it has negotiating room to avoid offering the full price."

A similar case recently settled by Tyco International (TYC.N) may have made debt holders uncertain about the effectiveness of language in bond agreements in preventing spin-offs, CreditSights added.

In that case. a group of bondholders sued Tyco, arguing that the company broke terms and conditions of its debt by spinning off its electronics and health-care divisions. The case was widely watched because it highlighted that investors may not be as protected as they think against corporate restructurings that hurt the value of their bonds.

Tyco's bondholders in April agreed to dismiss their lawsuit in return for a $250 million settlement. (Reporting by Dena Aubin; Editing by Kenneth Barry)