Big Announcment Possible Monday (9/22)
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.
I would like to make a disclaimer right now: I know almost nothing about bonds. Unfortunately, 99% of the information on the debt is in the bond market. I have researched many articles and posts by knowledgeable people such as Tyler, Brandon, CRFCEO, Homer, and many others. Some of the information that I found, I have not heard them mention before. I am unable to post links to my information, because it is out of my IRA account, which uses JavaScript to pop up information. I did however collect all of the CUSIPS that I found and will post them along with the rest of the information.
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
Very good!
This would explain Mel’s desire to handle all the debt at once rather than just the 2/09 converts.
It also gives new meaning to Mel’s comment of “opportunistic.”
Now I’m left wondering if this is already in place.
That sounds great, except you say:
“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.”
How does that coorelate to:
The bailout isn’t a done deal yet. Paulson is tryig to shove something through quickly that I’m not sure has our, the taxpayers, best interest in mind. I’m sure they are working overtime this weekend to come up with a workable plan.
There have been so many twists and turns with this stock. Just sayin, if Mel has some great news, he might hold off until the government figures out exactly what it is going to do.
Who knows 🙂
otone…
keep in mind that with the exception of GS, every major financial institution believes that Sirius is extremely undervalued.
B of A just bought Merrill. Both firms were very bullish on sirius. They may know something GS does not.
I read that article as well otone.
To me, it seems that they are just trying to nail down the specifics, and the rest is a done deal. As you said, they have probably been working all weekend to get this thing hammered down, and will announce something Monday.
Mel has probably been doing the same thing….
It would be almost impossible for the debt to actually get refinanced by Monday. I cannot imagine they they would have had the time to get all this in place. Plus with the bankruptcies and bailouts over the last week, the SIRI debt issue is not a priority for anybody but Sirius.
Also, getting a much better rate for a company like Sirius (negative equity, large outstanding debt already, general sentiment) would be unlikely, especially so in this financial environment where companies are getting busted for not properly pricing risk. IMO 12% is really not that bad or a rate for Sirius… given the perceived risk involved and the current macro situation. I do think that they can get a bit of a better rate, but it would be very odd if they could get 7.5%.
Certainly, if anything positive is announced concerning this debt, the stock will go up huge- probably 30% – 40%. If they announce anything on Monday, as per usual with Sirius, the market will probably drop 300 points and nobody will even get the Sirius memo.
Yes, I’m pessimistic this fine Sunday.
Brandon – also keep in mind that GS is so far the only company who has actually been right about the Sirius stock price. I hate GS as much as anyone else, but they did call it, and so far they seem to be very competent.
IMO, calling the Sirius share price is a toss up, but for the last few years GS has had all the luck. Hopefully this changes in the future, but I doubt it will miraculously change on Monday.
Brandon, understand. I’ve been watching this stock (and accumulating) this stock for quite a while now. Lets hope they continue looking in to the shorting issue so along with some needed good news, maybe this stock can finally shine.
Newman, this will be absolutely amazing if they can get some workable, that doesn’t totally screw the taxpayer and put the country further in the crapper. Think about the magnitude of what they are doing. Now. Think about the precedence regarding decision making they are setting. What they are doing is history making and to think that the proposal Paulson put in wss only 3 pages long is amazing to say the least. I would think at least 10 pages 🙂
Lets hope our leaders do the right thing.
Moe: With your statement, I think back to my favorite XM radio station: XM Comedy 150 – Uncensored Comedy. “It’s Funny Because It’s True” is one of the lines you hear alot on there.
: If they announce anything on Monday, as per usual with Sirius, the market will probably drop 300 points and nobody will even get the Sirius memo. :
It is sad to say, but that has been the norm for this stock for YEARS, but here’s to wishful thinking huh?
Worldspace went up over 100% Friday on debt deferral. If Sirius can do something along the same line as Worldspace did it could have a similar jump.
two comments/questions:
first, you say the notice call date is tomorrow. however, by my calculations, it is today, (i.e., September 20, 2008), not tomorrow, (i.e., September 21, 2008). 30 days before October 21, 2008, is today. 10 days before October 1, 2008, is today. while deadlines falling on weekends many times extend over to the next business date that is not a weekend or holiday, this is not always the case, sometimes they don’t and sometimes they go to the prior Friday. in this case, I have no idea which way the deadline would move, forward, backward, or not at all…however, if you are correct, I suppose it is possible that the notice would be given today, but not known about until tomorrow.
second, what makes you believe that the announcement would be tomorrow, rather than let’s say, next week, or in a month from now or in January 2009? are these calable only on October 21, 2008, and October 1, 2008, respectively, or are they callable anytime beginning October 21, 2008, (or October 1, 2008, as the case may be), and before the bond expiration date? question phrased another way is, are the bonds callable only on one date, or callable anytime beginning on that date?
correction to my post (dates only; analysis same):
by my calculations, it is today, (i.e., September 21, 2008), not tomorrow, (i.e., September 22, 2008). 30 days before October 21, 2008, is today. 10 days before October 1, 2008, is today.
I tend to agree with Moe, If the loans require 30 day notice I am not sure anyone was in the position to loan that money to Sirius based on where the market was at that time.
I think if Mel addresses any loan it will be the 2-15-09 300M.
He has time on the other loans and with the Goverment bailing out everybody, $$ will be there for loans.
On a related topic, when this 700 Billion is strap to the back of the US taxpayer. What parts of the goverment will we have to sell to the private sector to raise money to service that debit in the next few years?
The Post office?
The EPA ?
The U.S. Mint?
The IRS?
The GSA?
All of the above?
Will Goldman Scahs be brokering the deals?
It is not by coincidence that GS has gotten it right. When you control a stock, you can’t get it wrong.
Shark: My understanding is that it is any time between Today/tomorrow and the call date. I could be wrong and it could be any time between now and the maturity date, but I am not sure. As I said before, I don’t really know much about the bonds market.
Yes, of course Mel will be concentrating on the February converts primarily, but if they can get extra financing, I am stating that this could be a good way to get a lower interest rate on some of the long term debt without having to pay an early termination fee on the rest of the debt.
thanks.
Why are we paying so much ttention to this opinion when Newman keeps insisting he does not know much about bonds ?
I think Mel would like to announce dealing with the Feb converts and the Feb converts only by the end of Sept. The govt bailout hopefully is signed off on this week and this then gives him a few days to finalize the term loan required for Feb.
Newman –
Sorry, I didn’t mean to come off unappreciative of the information you have pulled together. I see the headlines on this blog and it get’s you a little excited that something is going to happen, but then you keep saying how you don’t know much about bonds. I guarantee I know less than you about them & hope you are correct about some news tomorrow even if it’s not exactly what you wrote about.
SXM..
We are paying so much attention because Mel had stated a desire to take care of all of the company debt.
Newmans findings make this more likely.
This article by bloomberg shows that credit markets are easing.
http://www.bloomberg.com/apps/.....t.ebC_7mms
Newman,
The old XM 14% Notes and 12% Notes were repurchased by XM back in 2006. The variable interest Notes were part of the Tender offer that XM offered at the close of the merger… recall that they raised $700 million and $550 million — that money was earmarked for tender offers on their $600 million worth of 9.75 Notes; the $200 million worth of variable interest rate Notes; and the debt on the Transponders on XM-4 (which was another $310 million)… which totals up to $1.11 billion in tender offers. Depending on the subscription to the tenders — will tell us how much of the $1.25 billion that was raised, remains. XM assumes that the holders of all of this debt took the tender offer.
Regardless, the 14% and 12% Notes do not exist anymore — and the variable interest rate notes likely took the tender offer.
As for Sirius’ $300 million convertible and XM’s $400 million convertible — neither of them are eligible for early redemption. They cannot call them. They can make a tender offer on them — which would have to be more than 101%. But neither XM nor Sirius has indicated that they want to do this — they can just buy them back when they mature.
SEE XM’s last 10-K, regarding de-leveraging during 2006:
http://www.sec.gov/Archives/ed.....6/d10k.htm
“14% Senior Secured Discount Notes due 2009
The Company repurchased or redeemed $148.7 million aggregate carrying value, or $186.5 million aggregate fully accreted face value at maturity, of its 14% Senior Secured Discount Notes due 2009, for a redemption price of $209.6 million, including accrued interest of $9.6 million. As a result of the transaction, the Company recorded a de-leveraging charge of $52.8 million; consisting of a redemption premium of $13.9 million, unamortized debt issuance costs of $1.3 million and unamortized discounts of $37.6 million.
12% Senior Secured Notes due 2010
The Company repurchased or redeemed $100.0 million aggregate carrying value and fully accreted face value at maturity, of its 12% Senior Secured Notes due 2010 for a redemption price of $117.2 million, including accrued interest of $4.5 million. As a result of the transaction, the Company recorded a de-leveraging charge of $15.5 million; consisting of a redemption premium of $13.0 million and unamortized debt issuance costs of $2.4 million.”
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I wonder if the Worldspace jump hurt the short-sellers? Would a similar jump do the same for SIRI shorts? Is there anyplace to get information on short numbers that is not 30 days old?
Homer, this is why I was trying to get you to private message me yesterday. I wanted to run this by you before I published the peice.
What about that $438 million that keeps showing up in my research due 12/31/09? It is obviously different than the 12/01/09 $400 million issue. Any info on that?
Sorry Newman, I’ve been in and out all weekend long — running the kid to all of his sports stuff… I’m just checking in now.
The $438 million in 14% Notes were issued by XM during their major refinancing in January 2003, replacing older 14% notes that were maturing. The new ones were to mature at the end of 2009, as you note. The 12% Notes were issued later that year. This debt was issued back when the company was really on shaky ground and needed to refinance maturing debt, as well as start raising funds to replace the satellites while they negotiated/litigated with the insuarance companies over the insurance settlement. XM had been chipping away at them in 2004-2006… until they no longer existed.
Why these Notes are still showing up in your account, is beyond me. XM forced redemption on all of the remaining amounts of them back in May 2006.
http://www.sec.gov/Archives/ed.....10/d8k.htm
As for the $400 million of 1.75% Notes were issued in late 2004 — and mature on 12/1/09. These are the Notes that XM recently raised the Coupon on to 10%, in exchange for them not Putting the debt on XM because of the change of control (merger). These still very much exist. XM can redeem them early, but they can make a tender offer on them, if they choose. I believe they will wait until this time next year to refinance or buy back.
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Homer,
There you go again, clouding the issues with fact.
Can we start over with this blog:
So we’re back to Sirius Feb converts of 300 million, XM term loan due May’09 400M and XM Dec’09 converts for another 400M.
Hope to hear announcement by end of the month for Feb Converts, but no guarantee or rush for Sirius since they can’t pay off the bond till Feb, but they still want to secure cash to put ? behind them and investors as soon as possible.
I saw something BIG TODAY. I am not sure how long this has been available, but Sprint has the NFL.
http://www.sprint.com/nfl
JS – I saw that also which didn’t make me too happy. Then again, could it be a Sirius deal with them ?
I also saw something just know that pisses me off. GS & MS just got OK to bcome Holding co’s to take deposits, starting their own banking divisions. Why am I pissed ? Because FCC took 18 months for a little pussy merger and then the govt moves overnight on all this financial turmoils bailing co’s out and we’re still stuck with this debacle !
i think that they may wait till later so as to get their house in order after the merger(cut costs etc.) Then they can go to the bank, show the expense/income line by line with the cuts already realized in and get a more favorable rate from the banks–The banks need to see low risk to them, which can be shown if the company will have a profit in 2009
The savings suggested of $40 million sounds great and will help–but i think eliminating the uncertainty of getting these bonds extended for a couple more years will help the markets most
Was the big news going to be that Sirius would be 9% today?
According to Orbitcast –
“David Frear, Sirius XM Radio Inc. Chief Financial Officer and EVP will be presenting at the Deutsche Bank Leveraged Finance Conference this Thursday, September 25th, the company said today.”
Let’s hope one of these presentations results in getting some much needed financing at better rates.
If this were just Sirius presenting I would expect the potential for some refinance news but I see a slew of companies presenting at this. Seems like another dog and pony show. Maybe he will be giving a lection on how NOT to finance a merger 101.