$100,000,000 Is Waiting In The Wings?
Conspiracy theorists will love this article. There are many who feel that Sirius XM Radio stock is heavily manipulated. In many ways, it is hard to argue against that stance. However, like many things in life, it is hard to find the smoking gun, and thus the debates begin.
Sirius XM Radio has a $100,000,000 credit facility with Loral Space systems. The credit was established for payments to Space Systems Loral on Sirius XM’s FM-5 and FM-6 satellites. Okay, conventional thinking states that the line of credit can not be drawn on to pay down the February debt. While this is true, there are provisions for Sirius XM to draw against payments already made. Simply stated, they could take back every nickel they have paid into the satellites back and use it as working capital. Further, they could continue to draw on the facility to keep the satellite construction rolling along.
THE CATCH
Sirius XM needs to decide on whether or not to use the credit facility by December 19, 2008 (The day after the annual shareholder meeting)… BUT… Sirius XM also needs to have a market cap of at least $1,000,000,000 to borrow.
According to the Space Systems Loral 10Q for Q3 2008:
“…Under the Credit Agreement, Sirius may borrow up to an aggregate principal amount of $100 million to make milestone payments under the Satellite Purchase Agreement for the purchase of the Sirius FM-5 and FM-6 Satellites (the “Sirius Satellites”) or, on or prior to December 19, 2008, to reimburse itself for milestone payments it has previously made with its own funds. Loans made under the Sirius Credit Agreement are secured by Sirius’ right, title and interest in its rights under the Satellite Purchase Agreement, including its rights in and to the Sirius Satellites. The loans are also entitled to the benefits of a subsidiary guarantee from Satellite CD Radio, Inc. and any future material subsidiary that may be formed or acquired by Sirius, other than XM Radio and any other subsidiary designated as an “unrestricted subsidiary” under the indenture governing Sirius’s 9 5 / 8 % senior notes due 2013….”
According to Sirius XM’s 10Q
“…The Loral Credit Agreement contains certain drawing conditions, including a requirement that SIRIUS have a market capitalization of at least $1 billion. Any loans made under the Loral Credit Agreement generally will bear interest at a variable rate equal to three-month LIBOR plus 4.75%….”
Simply stated, there is a substantial credit line available that could give Sirius XM Radio some much needed breathing room, but the clock is running short, and the market cap is too low. The market cap here at .26 cents is $855,000,000, a good $145,000,000 shy of the credit facility requirement. What does it take to get above $1,000,000,000? A stock price of .31 cents.
This is where the conspiracy theorists will go nuts. Sirius XM Radio seems stuck in its current range. Each day that passes with a market cap below $1 billion is another day where the hands of Sirius XM are tied. With the deadline only a few weeks away, and the stock price not cooperating, it is little wonder that the Board and Management are looking at several viable options. Those that feel the company is not thinking things through can rest assured that management is well aware of the situation. What we have is hesitant banks, and a deadline of December 18th on a credit facility. Someone has to blink first. Loral’s own $100,000,000 credit facility is through JP Morgan, so it is possible that somehow an arrangement between Sirius XM, Loral, and JP Morgan could be arranged, but time is getting critical.
For the reason of the credit facility it is my opinion that Sirius XM will want to be able to announce some sort of refinancing prior to December 19th, in hopes that the market cap will appreciate by then, allowing the company some flexibility in their cash situation.
Is someone deliberately holding Sirius XM stock below .31 cents? The conspiracy theorists will say so, and while there is no smoking gun, it is hard to argue against their stance. The bigger question is whether Mel can exert his influence to get the financing done, see an appreciation in the stock price that will allow more room to maneuver.
All that being said, there is still no guarantee that Sirius XM has any intention of using the facility, but the leverage comes from being able to use it….not necessarily from actually doing so.
Position: Long SIRI.
Great article Tyler.
Tyler –
I picked this up a few days ago in reading the 10Q. This is another reason I am on the sidelines right now.
I’m a buyer at .15 cents or not worth the risk in this market.
Imagine their market cap under 1 billion when they were once at 10 billion each at thei peaks – 95% down in total.
I wonder if Loral will choose to extend the deadline past December 19. Since Sirius XM is a potential long-term customer if theirs, perhaps it it in Loral’s best interest to offer such an extension. Would Loral perhaps want to offer such a financing to be used solely at a later date, when credit might perhaps be easier for Loral to obtain (with the assumption that credit markets might become more liquid as time passes, compared to the current time)?
The most interesting article I’ve read on SBuzz in awhile. Good find!
How we be certain that an arrangement was not already in place to use those funds? If they intended to use those funds, I doubt they would wait until the were below the $1B cap before executing the agreement
Good point egiscodr. Gosh darn it! Why can’t anything be simple and easy with this stock? Lol. 🙂
I guess if you like drama, this is the stock to own.
I don’t care much for drama, nothing but stress!!
Thanks T!!
Just happy to still have my bluesville 🙂
I like the new line-up, only lost a few channels I liked.
A lot of XMers are crying about it, and they need to put things in perspective if you ask me.
Tyler,
Excellent reporting……..thank you.
Demian
Tyler–
I had written earlier that your posts were sporadic. For the record, it was not a shot at you personally; it was more of a brotherly jab (we’ve been in this Sirius canumdrum forever it seems). Nonetheless, this article is why I continue to visit your site–thought provoking, intelligent, and well written. This is a great find. If I’m reading it correctly, I couldn’t find what amount Sirius has made to it’s ‘milestone payments.’ Perhaps none so far (that I can find). And regarding the ‘conspiracy’ of keeping the PPS below .31 (and thus below the $1 billion market cap)–you truly have to believe that manipulation is prevalent.
Under normal operating conditions I think it would be looked at as a an additional credit line if you had to use it.Not enough to have any impact.
Limited number of financial groups that can put together the kind of money for the FMD notes.
We hope SiriusXM mangenment does not want the stock price where it is today, unless you are a conspiracy theorists and think that taking the company private is the goal of Mel.
If you don’t trust Mel since the merger you can’t rule that out completely either.
Everyday we get closer to the stockholders meeting without any of the notes serviced, is closer to the vote that makes many of us very very uncomfortable.
I can hope they do not get the votes, But I doubt that will happen.
January we may see the RS and the paper printing begin to sell the new stock issues to raise money for the FMD notes.
The shorting will be as fast as Mel prints the new shares.
He needs to quit screwing around and cut costs, this means all the content agreements.
The timing for this is perfect.
Any content provider we are paying would rather see a 10 to 25% reduction in what we pay them now, then to see SiriusXM not around at all in the future and they get nothing.
If Mel took drastic cost cutting steps now, which are needed, the balance sheet would improve and the loans would get approved because of it.The financial groups would sit up and take notice, so would the analysts.
The mindset of just borrowing money and ugly money to solve your problems is what got us and most the country here in the first place.
You will and always will have to work you’re way out of debt, Not borrow you’re way out of debt.
Mel is not being tough enough, you have to get mean and attack every line item including all the content agreements!!
imho
vapogold
Tyler, For the past several months I have been obsessive in reading everything concerning SatRadio. I visit your site daily looking for updates. Thank you for your insight into this roller coaster ride called SIRIUS!!
A little ray of hope, based on this article. I know how to get the stock price up. I have stayed with SIRI all the way down from $2.00-$2.50 to the current $.25. All it takes is for me to get out and I am convinced it will pop to a dollar or above. I am sorry to be holding it back. Good article. I get most of my news from you and the other Buzz writers. I don’t remember reading anything about your position on supporting managment with the RS and the new additional shares.
Great article Tyler!!!!
What is your position on the reverse split anyway?
I don’t support authorizing currently based on the fact that they do not need to have the authorization now. When the Nasdaq clock starts again in January they have 1 month to get their pps above a buck. If they fail to do so they have 180 days to comply and can then get an additional 180 days if need be.
When I spoke with Paul Blalock all he could say is that “SIRI has a smart board and they know what they are doing!” If they want my support then let me in on what their intentions are. He did not answer as to why they could not wait to get R/S approval.
I would support it when and if we get more info on their finacial picture and it made sense. Since the merger as a sharholder, I have not benefitted from anything Mel has done up to this point!!
As for now I am not ready to give my support for the R/S under the perception of not meeting Nasdaq requirements only to allow them to make the move for some other purpose. As you stated, the short sellers would have a field day.
Vaporgold – Excellent post, cost side is the answer for the next year. I hope that they leave no stone unturned until they have slashed enough to make the financial institutions understand that they are hell bent on achieving profitability. There is nothing wrong with the busuness model; there is plenty wrong with the way XM & Sirius spent their way into this very real pinch point. The culture at the combined company is changing, and it needs to continue.
My position on the reverse split:
I am not in favor of it unless they need to do it to maintain their listing on NASDAQ
I believe that all of the proxy measures will pass at the December meeting. Thus, whether you are for or against the measures, you should be prepared for them.
Pre-merger. Why didn’t Mel access the Loral Credit Facility as opposed to taking the ugly financing course of action vis a vis the convertible shares for Goldman Sucks, Morgan Stanely, et al.?
1. Maybe if Mel had had that money, the FCC and the NAB would use it as a cudgel – claim that he did not need the merger to survive, etc.
2. Maybe there wasn’t sufficient time to get the funds.
3. Maybe it wasn’t enough money to make the merger happen. If so, it would have releaved some pressure and would have helped a great deal.
I have a feeling that it will be helpful to go to potential lenders having the option to do a reverse split and having the option to issue more shares. Lenders will want to have as much assurances as possible that the company is maximizing its efforts to assure they are repaid. In fact, I wouldn’t be surprised if potential lenders are stipulating such possibilities in order to offer lending – SIRI does not have to do these things, it just has to have permission to do so by its shareholders.
I am in favor of authorizing SIRI to have the OPTION to do a reverse split and to float more shares. I do not want them to do either, but instead want them to have the power to do what MIGHT be necessary to survive and prosper, and in turn us to prosper.
horesecork: look at the number of 0’s in that credit line: It is 100m. Sirius XM had to issue just over one BILLION (yes, billion with a B) in order to get the merger completed. This 100m would have been a drop in the bucket.
For everyone else: You all say that Mel needs to be cutting costs: That is what he has been doing for YEARS. The amount of waste that was rampant at Sirius before he arrived was outrageous. Everyone also needs to remember that Stern was hired BEFORE Mel. Mel had NOTHING to do with his hiring, his salary, or his guarenteed bonuses which were in his contract.
Now that XM is a part of Sirius, he is going after their books. A lot of people are saying how Mel seems to be ripping XM apart. Well, truthfully, he is. He has already had years to rip Sirius apart, now he needs to do it to XM, and he IS doing it. A 17% increase in revenue with a 75% decrease in losses? That is a significant difference to me.
Tyler,
Glad to see your back in the saddle looking at all the angles…. Time off is always a great way to gain new perspective and energies to continue the fight of providing objective “food for though” to an undernourished readership.
Thanks,
Cos1000
Newman,
I agree with you completely and do not mean to minimize your comments about Mel’s active and cost conscious management of this company….
I am just sick and frustrated with all of the bashing. It’s as though people who are complaining and filing lawsuits have a clue as to how this company, in these most difficult times, could be managed better.
Show me how?? …or shut the fuck up!!! That is all I have to say to those who want to take this management group and company down. And to Do What??? Waste millions of shareholder dollars experimenting with what little they know about the industry and waste away what little may be left of the company. To what end??? Do they want to destroy one of the most customer enjoyed music formats that has come along in years? You Bet they do…
How many detractors have ever even managed a successful Company(?), or any Enterprise for that matter?? Give us concrete examples, that are not now being implemented by management. Don’t talk in generalities; Be specific… Show us the way.
cos1000,
This isn’t a pro-Mel or anti-Mel comment but why did so many report that Mel was “ousted” from his position with CBS/Viacom?
Was it due to the share price being hammered during the last stretch of his tenure? Or was it something else?
GetItStraight,
Only my opinion, but Sumner and Mel weren’t seeing eye to eye at the time Mel left. SP and executive actions are not always a good connection of dots in trying to understand why things happen. My understanding was that Sumner went to Mel to get deals done, and at the time Mel left, the deals were done. Mel wasn’t in Sumner’s future. Mel does not cast a shadow on Sumner Redstone, no one does…. certainly not in Sumner’s mind.
GetitStraight
My only other thought about that is as you said, why did so many report??….. by who and on what median was Mel’s ousting reported?
horsecork…..
pre merger the credit markets were much different. The Loral facility was not the best of terms at that point in time. No though, the terms are not quite so bad.
Additionally, there was no anticipation that the equity would take the market cap below $1 billion. It is not prudent to borrow money until you have to.
cos1000 – I recall reading a couple of articles on the subject, one in the Wall Street Journal and again in another large newspaper.
I obviously don’t know Mel personally but have witnessed both good and bad in his career. Way more good than bad in my opinion.
Some people are a product of their surroundings and the environment they are in and some people create their own environment, either good, bad or both.
I think in many respects he created a good environment for himself in the past and hopefully is doing the same now.
I just have to laugh when people think someone is great when times are good but then fail when times aren’t so good.
Those that are great thrive under any circumstance. This current economic environment we are in will prove whether we have great management leading us or not.
What cos said.
Cos..
90m in shares, I call it a stock price of .25
If they use the COH on hand to service Feb note what do they have left to operate on? so they issue more shares as you stated, that’s more dilution. what will the stock price be then? .10 .05 a share?
Now we want to get loans for May and Dec notes with a stock price under .25 maybe.15 maybe .10 maybe .05 because of the number of shares outstanding.
That is not very attractive to lenders or investors.How do we get the stock price up?
Don’t put words in my mouth that are not mine.
I did not complain about the Stern deal that was before Mel’s time, or what they paid for any other deal.In fact, I don’t think Mel would have paid Stern that kind of money.
I said get reductions.
Futhermore contracts can always be re-neogiated if agreed to by both parties.It has been done many many times.
Now all the analysts are working for the NAB? and the analysts are keeping the stock price down?..nothing to do with shares outstanding?, no profit?,huge debt?
It is obvious you trust Mel 100% I don’t have any problem with that.That is your opinion.
I don’t agree with good reason.
vaporgold
vapor..
I’m not going to respond when my posts are pulled. Obviously what you have to say to me is more important than any opinion I might have on the issue as evidenced by my post being pulled. You make assumptions about my trust level for Mel without having a clue on how much “trust” I place on anyone…
What did happen to cos’s first response to vapor?
spanyo
good question…. I guess it was too “controversial” and “off topic”…. Although no one has said anything…. so who the hell knows….. what a waste of time…
Well cos, you wrote what I was thinking. I didn’t think it was controversial at all… And if it was off topic, then a lot of other posts should be removed.
Tyler or Charles, what is up with that? You guys are fair. Some kind of glitch?
guys….
Not sure what post you are referring to. I did not pull anything, and from what I have seen COS does not say anything that would deserve getting pulled.
We do not try to censor comments. Sometimes if something is vulgar, spam, or reveals personal information, etc. we will remove it, but that’s about it.