Barclays analyst Venu Krishna CFA, has published a report on Sirius XM centering on the financial performance of the company and more specifically an investment strategy revolving around the Bonds.
Krishna states, "Over the last few months, Sirius (SIRI) has lowered its near-term credit risk substantially as a result of a number of refinancing transactions whereby the company has pushed BCI, New York back almost all of its maturities in ’09 &’10 to 2013. As a part of this process, it also issued preferred stock in the company to Liberty Media (LMDIA) which converts to a 40% stake in SIRI on a fully diluted basis."
Krishna feels that the main motivation for the Liberty deal is most likely the $2.6bn in deferred tax assets at SIRI on account of its accumulated losses which can only be monetized if SIRI remains a going concern. This fact in Krishna's opinion provides a liquidity backstop for Sirius XM because Liberty will want to protect that benefit. According to the analyst, this gives Sirius XM a three year cushion which just happens to be the minimum waiting period for Liberty (under the Internal Revenue Code) before it can materially increase its stake in SIRI.
Based on these factors Barclay's is positive on the credit over the next three years. They are more cautious in the longer term, but their suggested bond play has a good three years for investors to capitalize on.
Barclay's recommends going long the 3.25% 2011 SIRI Convertible Bonds as there is no other debt coming due before this convert at the SIRI holdco level and it matures before the three-year LMDIA testing period expires
Position: Long Sirius XM Radio