As most already know, Sirius has obtained a $250,000,000 term loan from Morgan Stanley. In the press release, Sirius stated that the “terms are similar” to that of their existing note at 9.625%. Some made a quick assumption that those “terms” referred to the interest rate, and raised questions about having a secured loan (backed up by the company) at a rate above 9%. What could well be the case is that the "terms" being referred to are for issues such as the "vendor carve-out" that allows Sirius to still use their credit facility with Loral, the number of points above LIBOR, etc.

According to analyst Jonathan Jacoby of Bank of America, the interest rate is likely 2.5 points above LIBOR. That would put the interest rate at about 7.9%. This is substantially different than the conclusion of 9.625% that some have jumped to.

Now, the other fact that needs to be considered is what happens to the $250,000,000. Investors need to bear in mind that Sirius already had $260,000,000 in cash left at the end of Q1. Conservative estimates from analysts such as Robert Peck of Bear Stearns show cash burn of about $80,000,000 for the rest of 2007. That being said, the $250,000,000 will likely be untouched, and as yet unneeded.

Likely this $250,000,000 will not be sitting in a safe at Sirius headquarters. It will be put into an investment vehicle that itself will draw interest. By example, a 6 month Treasury note will pay out about 4.75%. As demonstrated by Peck's cash burn analysis, this money will not be tapped in the short term, and thus Sirius could pursue longer term, and higher interest paying vehicles for the cash.

If we assume that Sirius can get 5% interest for the $250,000,000 then we are looking at a NET interest rate of 2.9%. Thus actual cost of borrowing this money may well be substantially lower than many may initially anticipate. This would remain the case until such time that Sirius tapped into this cash, if ever.

All too often, people tend to have a knee jerk reaction to a piece of news or a particular metric. Those that can sit down and think through the likely and reasonable courses of action have an advantage.

In a nutshell, the added liquidity is a stabilizing event for Sirius as well as the sector, and with reasonable thinking and reasonable assumptions, the move was prudent.

Tyler Savery Position – Long Sirius, Long XM