April 6 (Bloomberg) -- Time Warner Inc. is seeking to amend debt agreements that restrict the transfer of assets in its AOL Internet unit, giving the company more flexibility to spin off the division.

Time Warner offered holders of $12.3 billion in debt a payment of $5 for every $1,000 of principal they hold and a guarantee by the company’s HBO unit in exchange for waiving the restrictions, according to a statement today.

Chief Executive Officer Jeffrey Bewkes said Feb. 4 that one option for AOL would be spinning off all or part of the unit to shareholders. Time Warner last month named former Google Inc. executive Tim Armstrong to lead the unit, making a spinoff more probable, according to Michael Nathanson, an analyst at Sanford C. Bernstein & Co. in New York.

“It clears a major hurdle to spin AOL” to Time Warner shareholders, Nathanson, who rates the stock “market perform,” wrote in a note today. “This potential move, along with the recent hiring of Tim Armstrong, suggests that the spinning of AOL could likely be announced in the next few months.”

Time Warner, based in New York, dropped 66 cents to $21.56 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has fallen 3.3 percent this year.

‘Out of the Way’

The company is asking for consent from debt holders as of April 2, and the solicitation expires at 5 p.m. New York time on April 15, according to the statement.

“This clears one obstacle out of the way” for carving AOL out from Time Warner, Jake Newman, a debt analyst at CreditSights Inc. in New York, said in an interview. “Jeff Bewkes is working fast to reshape the company.”

Last month, Time Warner completed the spinoff of Time Warner Cable Inc., receiving $9.25 billion in cash and allowing Bewkes to focus on content assets such as the Warner Bros. film studio and the CNN, HBO and TBS cable networks.

In December, Bewkes said Time Warner was having discussions with Yahoo! Inc., Google and Microsoft Corp. about a deal involving AOL, without elaborating.

AOL’s ad sales slid 18 percent in the fourth quarter, after a 6 percent decline in the third quarter and a gain of 2 percent in the second. The unit told employees in January that 10 percent of the workforce would be cut as advertisers curb spending.

Time Warner’s $2 billion of 6.875 percent notes due in 2012 fell 0.35 cent to 101.58 cents on the dollar today, according to Trace, the bond-price reporting service of the Financial Industry Regulatory Authority. The debt yields 6.3 percent.

To contact the reporter on this story: Sarah Rabil in New York at srabil@bloomberg.net

Last Updated: April 6, 2009 17:05 EDT