Karmazin, Convertibles, Conspiracies... and Goldman???
Okay, first things first -- let me say that I'm not one to normally subscribe to conspiracy theory's. I had been very critical of Michael Hartlieb in the past - and his Sirius/XM interop conspiracy... as well as others surrounding Goldman and whatever else... but something smells not quite right...
There had been talk on this board (I believe) about what Goldman was up to -- why their analyst blasted Sirius/XM, while Goldman held on to so much of Sirius' Feb09 debt. I was skeptical at first, then later started to wonder. I noted it my head to keep an eye on this, then wham -- it hit me this past week. I don't wish to start a new conspiracy -- I only want to express my observations and make everyone think for a moment about this. Karmazin made a comment this week at the ML presentation that started me to wonder. (I attached in a zip file, an audio clip of that comment -- with the transcript here):
We currently have a Sirius convert of $300 million, that is due February of 2009. We have already had conversations with banks about securing the cash, okay, in order to take out that convert. You shouldn’t be surprised that the holders of the convert have been very anxious to talk to us about, “gee, we’d like to exchange that for another piece of convert”. That is not the interest that the company has. The company has, is that we will raise the debt – the combined with our approximately $450 million of cash that was on our balance sheet, the last time we report it, which was the end of June. So there was $450 million of cash, we are looking to raise bank debt – probably senior secured, because we have basket in which we can do that. Probably a term that will be a couple – three years – short term; and that will take out that issue. When will we do it? We will do it, this time more opportunistically than we did, last time. When would I like to do it? I’d like to do it, sooner rather than later. Because I’d like to get this question mark out of everybody’s mind, “What are you going to do about that Feburary 2009 convert. The market, based on everything I’m told is assuming we may have to raise equity to deal with that. So let me resolve that as fast as I can – and show that I don’t need to do that. And I think that that would look positive.
So what has me wondering? This line, "You shouldn’t be surprised that the holders of the convert have been very anxious to talk to us about, “gee, we’d like to exchange that for another piece of convert”."
I believe it was Brandon (I'll give proper credit where credit is due) that pointed out how much of these maturing Notes that Goldman has. The question in my mind is, what gives? I think I have a possible reason now...
Goldman has little to lose by Sirius taking out this debt, via them raising a new bank loan to buy back this maturing debt -- but they have a lot to gain by Sirius being forced into offering "the holders" of this maturing debt an exchange for a new convertible note... no???? Think about it... If Sirius was forced to exchange for a new convertible -- with the new note having a higher coupon, than the current 2.5% -- with a much lower convertible price, than the current $4.41/share price... no???
Worst case scenario, is the convertible notes get bought back -- best case scenario, the notes get exchanged for new ones with a higher coupon and a lower convertible price. Which do you think is in the best interest of Goldman??? Goldman currently holds $127.8 million of this $300 million in maturing notes... that is 42.6% of the notes. Think about that! The hold over 40% of the notes -- and Karmazin says that they have been contacted by these note holders who said, "we’d like to exchange that for another piece of convert". It's easy to believe that Goldman is one of those saying this. And with Karmazin and Sirius saying, no -- we just want to buy them back... how do you think that Goldman is going to respond, knowing that they can benefit greatly by a new convert??
I'm not going to delve in to the whole connection between Goldman and Cramer -- and his all of a sudden turn around recommending that investors "buy Sirius debt"... but it does have to make you wonder??
If Goldman can put pressure (via Weinkes' bearish call on Sirius) -- keeping the pps down; could it not also continously (and quietly) bash the company/stock and put pressure on them to take the convertible exchange offer and make it difficult for them to obtain a bank loan -- instead of having their notes bought back? It makes me wonder.
The fact is, Goldman has nothing to lose -- because Sirius has to buy the maturing notes back -- and a lot to gain by keeping the pps down and keeping a bearish outlook on the company to make it difficult for them to refi this maturing debt -- forcing them to take their exchange offer.
The whole thing stinks -- and me (the guy that doesn't buy into conspiracy theories) -- makes me wonder just how much Goldman is manipulating this stock. I think the sooner that Sirius raises the bank debt (preferrably), the sooner the pressure will be taken off of this stock. We're really starting to see just how much an investment company like Goldman can have an impact on a large company like Sirius. And from what I hear -- its not the first time that Goldman has done something like this.
Love to hear thoughts...