SiriusBuzz Radio will broadcast tonight, July 2, 2009 at 9:00 PM eastern. Join Tyler and Charles as we break down the happenings in satellite radio, discuss the latest news, and take a look at what the future holds. SiriusBuzz Radio comes to you live, and callers are always welcomed. You can join the action by calling 347-945-7995.
Sirius XM announced today that Mel Karmazin’s employment agreement has been extended through December 31, 2012. The new deal gives Mr. Karmazin a raise in his base salary, as well as the options to buy 120 million shares at a price of $0.43 per share.
Karmazin, a long time radio industry guy, joined Sirius Satellite Radio in 2004. His deal was scheduled to expire in the fall of this year and could have been a potential worry for the street. Over his tenure, Mel was able to bring about a merger with XM, but has also been at the helm during a period where shareholder value has eroded. The new deal will likely be met with mixed emotions, as some have been critical of the share price as well as the merger.
The new options that Mel received will once again give him incentive to bring the share price of the stock upward. Karmazin recently donated back the options he had from the previous deal about a month ago, in a move that helped offset newly issued shares. Mel’s old options were so far under water that they would likely never provide the incentive for him to exercise his rights to the options. Instead, Mel had done a few purchases of stock on the open market.
Sirius XM Radio announced today that XM Satellite Radio (a unit of the company) sold $525 million in four-year senior secured notes. The move, which dealt with more money than originally anticipated will improve cash flow, is at a lower interest rate, and does away with quarter amortization payments that the company was having to make.
The additional funds above and beyond what was announced last week will now take care of all of the Liberty Media loan to XM which was at an interest rate of 15%. The new facility improves that rate to 11.25% with a yield of 12.85%. The original $250 million that Liberty loaned to Sirius will still exist. This move cleans up the XM books moving forward and allows Sirius XM to better the overall balance sheet and improve cash flow. JP Morgan facilitated the deal.
Sirius XM stock traded higher on the news.
Position - Long Sirius XM, No Position Liberty Media
Investors in Sirius XM have been waiting for good news from the analysts, and it appears that at least some firms have faith that satellite radio will prosper in the weeks and months ahead. Barrington Research has upgraded SIRI to Outperform with a $0.70 price target.
In a note issued today, Barrington highlights that the woes of the merger process and credit market took their toll on the equity, but that things are beginning to change, and that perhaps brighter days are ahead for satellite radio investors.
Barrington believes that investors should consider several core fundamental issues:
“Now it appears there will be an added fee below the line labeled a Royalty Recovery fee permitted under terms of the FCC agreement to reflect both the higher level of royalty rates now in effect, as well as a catch-up of rate increases since the date the merger was announced. This particular fee is likely to provide meaningful additional dollars, though the phase-in will take several quarters. New initiatives like the iPhone App are being very well received. However, the revenue opportunity may be less important than the attention and added visibility it has provided to Sirius XM and the greater usage of the service it could spur.”
Barrington calculates what could be significant upside from current levels to $0.70 (post dilution), based on 2010 estimates and to $1.30 based on 2011 estimates. Given this upside, they now rate SIRI as an OUTPERFORM.
Position: Long Sirius XM Radio, No Position Apple.
Sirius XM Radio announced this morning that XM Satellite Radio Inc., a wholly owned indirect subsidiary of SIRIUS XM Radio, is offering of $350 million in aggregate principal amount of Senior Secured Notes due 2013 to qualified institutional buyers. The move is designed to seek better terms on what was $350 million of XM bank debt that was originally due this past May.
The story of this debt is long and can be a bit confusing because of various activities since the merger. This offering has nothing to do with the Sirius XM debt that was taken on to complete the merger, but instead what was existing debt for XM. That $350 million was recently refinanced with Liberty Media’s John Malone taking on $100 million of it, and the balance of $250 million financed in traditional methods.
This new offering will refinance, and effectively pay off the $100 million borrowed from John Malone, as well as pay off the balance of the traditional bank debt which now stands at $225 million. The remaining $25 million will be used for “closing costs” as well as general corporate purposes.
Sirius XM is looking for better terms, as well as a slight extension in the time-frame of payback. This new move should create a better cash flow for the company, as well as lower the interest rates which the company is paying. Finalized terms have not been announced.
For Sirius XM investors, the debt picture had been a major concern. It was the debt picture coupled with approaching maturity and a bad economy that had Sirius XM on the brink of a possible bankruptcy filing prior to Liberty Media’s Joe Malone stepping into the picture. The fact that the company is active in restructuring their debt picture demonstrates that not only is the company gaining their footing, but that the confidence of the street in Sirius XM’s ability to repay debt is increasing.
Position: Long Sirius XM, No Position Liberty Media.
Miller Tabak analyst David Joyce issued a report Friday in which he maintained his neutral position, but lowered long term share price expectations. Joyce is one of only a few analysts that are actively following Sirius XM Radio.
Joyce cited that Sirius XM missed their expectations on revenue but that this was balanced off by better than expected cost cutting. Joyce previously had a short term price target of $0.50 and a long term target of $1.25.
The analyst feels that subscriber numbers will continue to be an issue in 2009, and that revenue may be hurt by this. Miller Tabak is decreasing their 2009 revenue estimate to $2.390 bn (-2%) from $2.507 bn (+2%) but increasing their 2009 OIBDA estimate to $372 mm, above the increased $350 mm guidance above our prior $317 mm estimate. The firm now expects Free Cash Flow of $(47) mm vs. our prior $(35) mm estimate as interest expense has ticked higher, albeit due to the relief getting funding to replace maturing debt. Capital expenditures of $71 mm were more than Miller Tabak’s $50 mm estimate in 1Q09 which helped offset the OIBDA outperformance.
As regular SiriusBuzz readers know, Stock Shock is a documentary about Sirius XM, market manipulation, and the overall story of satellite radio. I was interviewed for the film, and appear in it several times. I must say that I had some hesitation when I was first approached about being in the movie. After all, I am a simple blogger, who just happens to follow satellite radio pretty closely. After speaking with the producer and director, Sandra Mohr, I agreed to be interviewed.
Today, I received my copy of the movie, and popped into the entertainment system. I knew of a lot of the content of the movie, but had not yet seen it. Knowing that the editing process is what tells the story, I had a bit of nervousness about not only how I would be portrayed, but also what the tenor of the movie would be. I can say that overall I was pleased with the piece.
Stock Shock the movie not only tells the story of satellite radio, but the story of people who are perhaps satellite radio’s most passionate fans…the investors. The movie speaks to how Wall Street really works, and to the overall lack of regulation and oversight not only with the Sirius equity, but across the board.
Martine Rothblatt is oft referred to as the founder of satellite radio. An entrepreneur, a lawyer, and a an author, Martine is a well rounded person who’s various experiences have delivered ideas and ideals that to many may seem off the beaten path. In 1990 she created Worldspace and Sirius Satellite Radio, and was instrumental in getting the SDARS spectrum allocated that ultimately led to the satellite radio services we enjoy today.
In the mid 1990’s Rothbatt underwent sex reassignment surgery making a transition from male to female. Many may not understand such an action, but in the end, the transformation allowed Martine to fully identify with herself as a person. She possesses a unique perspective on the world, and it was from her mind that the initial concept of satellite delivered audio entertainment was born. In 1990 satellite radio was a grand idea that seemed far away and only a dream. For Martine, the ultimate reality of satellite was known from the beginning. Ironically, even with 19 million subscribers today, there are still many who simply can not grasp the value of what satellite radio has to offer. She was a visionary who dreamed of digital delivery of music when the rest of the world was still fast forward and rewinding audio cassettes!
Stock Shock The Movie is more than a story about the rise and fall of Sirius XM’s stock price. It tells a story about the market as a whole, and also delves into the mind of visionaries such as Martine Rothblatt. This exclusive audio clip of Martine gives satellite radio fans a brief glimpse into the mind of the creator of satellite radio.
Stock Shock The Movie will begin shipping June 10th. Pre-order now and use the code “Tyler” for free shipping.
Position: Long Sirius XM, None Worldspace.
Tyler Savery appears in Stock Shock The Movie.
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