The biggest issue holding Sirius XM back right now is debt. With all of the financial market turmoil going on, it has become uncertain as to whether the company will be able finance over $1 billion in debt due in 2009. I decided to do a bit of research into the issue.
Why do I think a big announcement is possible Monday? Because of what I found with the XM debt:
- Cusip: 98375YAH9 - $438 Million bond at 14% coupon matures 12/31/09, but is callable 10/21/08 with 30 days notice (which would put call date of 9/22/08)
- Cusip: 98375YAK2 - $185 Million bond at 12% coupon matures 6/15/10, but is callable 10/21/08 with 30 days notice (which would put call date of 9/22/08)
- Cusip: 98375YAT3 - $200 Million bond at variable coupon matures 5/1/2013, but is callable 10/01/08 with 10 days notice (which would put call date of 9/22/08)
Obviously, this does not address the other 2 main issues, which are the $300 million Sirius bond due 2/15/09 or the $400 million XM bond due 12/01/09. Generally if a bond is called, the repayment is 101% of the amount due, which means Sirius XM could call the $700 million in debt due in 2009 for an early termination fee of approximately $7 million.
However, what the above information DOES show, is that Sirius XM definitely has some options. The early termination fee does not apply if there is a clause that says the debt is callable, which is what I was pointing out in the 3 bonds mentioned above. With an average coupon on those bonds over 12%, Sirius XM could possibly refinance a lot of debt beginning tomorrow without an early termination fee. Assuming this $823 million in bonds at 12%, every 1% point that Sirius XM is able to knock off of the coupon equates to a savings of $8.23 million per year. If they were able to get this amount of debt down to something more reasonable, say a 7.5% coupon, this would save them 4.5% interest per year, bringing the annual savings to nearly $40 million per year, which by far surpasses the $7 million they would pay in penalties to call in the other debt early.
With the banks getting a hefty infusion of cash from the government, Sirius XM's opportunities and options may have been blown wide open, and we may be in for a big announcement tomorrow.
To discuss this article further, feel free to most a comment below, or head on over to the SiriusBuzz Forum Thread - Big Announcement Possible Monday 9/22?? to point out mistakes or something that I may have missed.
Position: Long SIRI