Sirius Buzz Radio will air again Thursday Night at 10:00 PM Eastern. The show will last one hour and callers are welcomed. The call in number is 347-945-7995. We will cover the new Logitech Squeezebox, have an FCC parody, discuss the latest 8K filed by XM, and of course, delve into the exciting topic of the merger.
Stop buy and listen to Sirius Buzz Radio live, and as always, replays are also available.
Position – Long Sirius, Long XM
XM Satellite radio filed an 8K with the SEC today relating to Major League Baseball and other financing matters. In the filing XM stated that they have escrowed $120 million for MLB, as well as a disclosure that they intend to begin to use the GM credit facility in June of this year.
THE XM 8K
As previously disclosed, our multi-year agreement with Major League Baseball (MLB) requires us to maintain $120 million in escrow for the benefit of MLB or furnish other credit support in such amount. This credit support was previously provided through a surety bond which expires June 30, 2008. On May 16, 2008, we provided $120 million for an escrow arrangement for the benefit of MLB to replace the expiring surety bond. We are continuing to have discussions with MLB about this escrow and related matters and there may be further developments. The escrow funds were from current operating cash and on May 15, 2008, we borrowed the remaining $62.5 million available under our $250 million revolving credit facility with a group of banks. This escrow arrangement, which we intend to replace with a letter of credit, surety bond or other similar arrangement, reduces the company’s unrestricted cash liquidity, and could have an adverse effect on our financial position if we are not able to replace the escrow arrangement with a letter of credit, surety bond or other similar arrangement.
Interest under our revolving credit facility is currently 6.00% and is based on the prime rate. All amounts drawn under the facility are due on May 5, 2009 and are secured by a lien on substantially all of our assets. In February 2008, we executed an amendment to the facility to provide that the facility will survive our pending merger with Sirius Satellite Radio. In addition, we expect to execute an amendment to the facility to provide that the $75 million in cash and cash equivalents we are required to maintain at all times is lowered to $50 million for a period of 90 days. We continue to have access to the $150 million credit facility provided by General Motors, which may be used only for payments to GM and which matures in December 2009. We expect to begin utilizing the General Motors credit facility in June 2008.
As previously disclosed, provided that we meet the revenue, expense and cash flow projections of our current business plan, we expect to be fully funded and not need additional liquidity to continue operations beyond our existing assets, credit facilities and cash generated by operations; our current business plan is based on estimates regarding expected future costs, expected future revenue and assumes the refinancing or renegotiating of certain of our obligations as they become due, including the maturity of our existing credit facilities and $400 million of convertible notes in 2009 and the MLB escrow arrangement. Our costs may exceed or our revenues may fall short of our estimates, our estimates may change, and future developments may affect our estimates. Any of these factors may increase our need for funds, which would require us to seek additional (including replacement) financing, which financing may not be available on favorable terms or at all, to continue implementing our current business plan. In addition, we may seek additional financing, such as the sale of additional equity and debt securities, to undertake initiatives not contemplated by our current business plan or for other business reasons, or seek to refinance or renegotiate certain of our other obligations.
The foregoing description of the amendment to the credit facility does not purport to be complete, and is qualified in its entirety by reference to the full text of the form of amendment to the credit facility, which is incorporated herein by reference.
Position – Long XM
Back in December of 2007 the FCC approved new media ownership rules by a vote of 3 to 2. The commissioners against the new rules were democrats Copps and Adelstein. Both commissioners have now issued statements in light of the recent senate vote to overturn the new rules. President Bush has promised a veto of any overturn attempt, so of course the entire issue is a contentious one. The National Association of Broadcasters has come out against the Senate resolution citing “seismic changes in the media landscape over the past three decades.”
What sector watchers may find interesting are the comments of commissioner Copps and Adelstein. Can their position on the media ownership rule translate to their likely opinion on the satellite radio merger? The answer to that question is subjective, but the tenor of their comments could lead one to believe that the democrat commissioners will not be positive votes on the issues surrounding the proposed merger of Sirius and XM.
“The Senate’s complete rejection of the FCC’s attempt to permit greater media concentration represents a great victory of the people over the powerful. In light of the Senate’s action, any proposed transaction seeking to exploit the new rules will likely face intense scrutiny. This vote reflects a strong consensus across the ideological spectrum against further media concentration, from left to right and virtually everybody in between. The FCC veered dangerously off-course from the American mainstream, so our elected representatives are trying to steer us back. This unequivocal, bipartisan rebuke of the FCC is a wake-up call for us to serve the public rather than the media giants we oversee. Chairman Inouye, Senator Dorgan, Vice Chairman Stevens, Senator Snowe and the many other Senate leaders and public interest organizations who pushed this forward deserve our congratulations and the thanks of the American people.”
In what can only be termed as a cautious use of words, the National Association of Broadcasters expressed opposition to the passage of the Senate Joint Resolution 28 that would serve to rescind the FCC media ownership vote that happened last December.
The NAB’s Dennis Wharton said, “NAB strongly opposes efforts to overturn the FCC’s exceedingly modest reforms made to media ownership rules. We are hopeful that policymakers ultimately come to fully appreciate the seismic changes in the media landscape over the last three decades, and stand down on this unnecessary proposal.”
This would seem to be an acknowledgment of a competitive environment in the media sector.
In a 186 page Ex-Parte filing with the FCC, U.S. Electronics has filed suit over a Freedom of Information Act request. The issue centers on a request by U.S. Electronics to see documents relating to rules and regulations of the FCC and whether or not Sirius and XM have complied.
Is this issue really a concern of U.S. Electronics with relation to the merger?
What exactly does the location discrepancies of terrestrial repeaters have to do with U.S. Electronics?
I could go on and on, but there is little point to doing it. U.S. Electronics may have a point with open access, but these other things leave a question as to their motives.
Read the U.S. Electronics Filing
Position – Long Sirius, Long XM
One worry for sector watchers regarding the merger is the refinancing of putable debt. With credit markets strapped for cash people worry that the merged company would not be able to reach terms that carried a reasonable rate. One key aspect of the current bonds is the value of them as they stand vs. the potential value in relation to a merger. Simply stated, would bondholders rather have the current situation, or be a bondholder of a merged company that will deliver synergies.
Cowen analyst Tom Watts believes that current bondholders and management could have an “agreement in principle” by the end of May. The analyst also notes that management had temporarily stepped away from the refinancing talks in order deal with issues at the FCC. According to Watts, “Timing of the FCC review, and pace of negotiations with XM and SIRI, suggest an approval (FCC) could be handed down as early as June, prompting management to make both announcements together.”
While this news is positive in a couple of aspects, it also indicates that FCC approval could still be a few weeks away. It goes without saying that the FCC process would be down to discussion on various drafts that Chairman Martin had drawn up about a month ago. It is our opinion that the sticking points deal with spectrum, minority ownership, and public interest channels. An FCC decision can come without notice.
Watts also notes that Sirius could return to pre DOJ levels which implies a 25% upside.
Position – Long Sirius, Long XM
The Squeezebox Duet is a Home Run, and it’s because Logitech has covered all of the bases. Simply Stated, this is a MUST HAVE ADDITION to the sound system of any person who appreciates audio entertainment!
We got our hands on the new Squeezebox Duet for a review, and I can tell you this…No one will get this nifty device out of my hands. The Squeezebox Duet is a home run! The sleek and stylish controller and receiver fit any decor, the 2.4 inch color LCD screen allows further customization to suite whatever your mood, and that is just the beginning.
Logitech’s Squeezebox Duet allows users to access millions of songs from Internet radio or even your own play lists. All of this is in CD quality, and controlled through the easy to operate Squeezebox handheld device. Better still, one Squeezebox can let your kids listen to their tunes in the playroom, while you listen to yours in the den, and your wife her own in the living room. Want every room in the house to have the same music? With the Squeezebox system it is possible.
Logitech covered all of the bases by developing a simple user friendly Squeezebox system that will add gusto to any audio entertainment system. The Squeezebox Duet also has the ability to allow consumers to build a whole house system at a pace that fits any budget. Out of the box the Squeezebox Duet comes with one controller and one receiver and that is all it takes to get yourself started. This allows you to instantly hook up the Duet to your existing home stereo and begin enjoying all of the music that the Internet has to offer. At $399 the Squeezebox Duet will give your existing stereo functionality that you did not think possible. No more CD’s on shuffle. Instead, you music choice is only limited by your imagination.
While this is being published a few minutes early, it would appear that the merger agreement between Sirius and XM will, as expected, continue. When they announced the last extension, the expiration was may 15th, 2008.
“XM Satellite Radio (Nasdaq: XMSR) and SIRIUS Satellite Radio (Nasdaq: SIRI) today announced that the companies have agreed not to exercise their rights to terminate the Merger Agreement prior to May 15, 2008. SIRIUS and XM also announced that they have agreed to further extend the merger agreement, as necessary, for rolling two week periods unless either side notifies the other of its intention not to extend.”
We may not see an announcement regarding the continuation of the deal at all since the extensions are automatic. This means that the status of the deal is still in the “ON” mode through May 29, 2008. At that point, either company could walk away from the deal without penalty ($175 million), however, with DOJ approval, and the FCC having seen about all of the information possible, it is unlikely that either party will walk away.
Thus, while the political tensions play themselves out at the FCC, investors have a fresh new two week window to be excited or frustrated about.
This issue may cause some confusion, but the terms of the rolling extension are quite clear. The next date to mark on your calendar is May 29th.
Position – Long Sirius, XM.
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