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Thread: XM Recent Bond Refinance

  1. #1
    Seamless82 is offline
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    XM Recent Bond Refinance

    So, if this merger doesn't go through, as I understand it, XM will not be able to refinance its $400 million worth of bonds. The refinance is contingent on the merger, right?


    If we read between the lines, can we infer that XM is in the poor house without the merger? That's how it appears to me. Just an opinion.

    Any thoughts on this?

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  3. #3
    Seamless82 is offline
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    "The exchange offer will be conditioned on the closing of the merger and to other customary conditions for an offer of this nature. The Offer will not be subject to a minimum condition."

    http://biz.yahoo.com/prnews/080627/nef016.html?.v=56

    It is funny how I am no longer phased by a 15 - 40% move in these equities.

    I need some coffee... yawn.

  4. #4
    zcurzan is offline
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    One step back, lets put this in context:

    The noteholders that are party to the agreement have agreed not to assert any claim that the proposed merger of XM with a subsidiary of Sirius Satellite Radio constitutes a "Fundamental Change" under the existing indenture, which, if any, would require an offer be made by XM to repurchase the existing notes at par within a specified period following the merger. The exchange offer will be conditioned on the closing of the merger and to other customary conditions for an offer of this nature. The Offer will not be subject to a minimum condition.
    So this is saying that the noteholders cannot classify the pending merger as a "fundamental change" thus forcing an XM buyback the notes. And in the next sentence says that the exchange is conditioned on the closing of the merger. Doesn't the phrase "conditioned" usually mean that its "dependent upon"? As in this will only happen if the merger occurs. But the headline of the article says that they are "commencing the exchange".

    Who speaks legalese? Did the exchange already occur, or is it occurring subject to the outcome of the merger?

  5. #5
    homer985 is offline
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    Quote Originally Posted by Seamless82 View Post
    So, if this merger doesn't go through, as I understand it, XM will not be able to refinance its $400 million worth of bonds. The refinance is contingent on the merger, right?

    If we read between the lines, can we infer that XM is in the poor house without the merger? That's how it appears to me. Just an opinion.
    FWIW, I keep seeing the term "refinance" tossed around with this recent move too often. Let's make this clear -- this is NOT a refinance.

    When you refinance bonds, you issue new Notes - that have a later maturity date and usually a different coupon. The funds raised from that new issuance are then used to "buyback" the older Notes -- usually for a premium. All bonds come with an indenture statement with yearly milestones of what the early buyout would cost. Bonds that have a little more than a year remaining, would have early buyout price of 1.01%, for example.

    This move by XM is a simple note exchange. Exchanges are done, when the lendors and the borrowers come to an agreement to change the terms of the bonds. In this case, XM is offering to increase the coupon from its current level of 1.75% to 10.0% -- in exchange for the holders giving up their right to put the debt on XM, should they have a fundamental change of control... ie, the merger with Sirius. XM reached an agreement with the holders of over 94% of these bonds -- who agreed to give up the put right, in exchange for the coupon increase. To do this, the old notes must be exchanged for new ones. But other than this, there is no other change to the terms of the bonds. There was no buyback, there was no new issuance and there was no change in the maturity date. Thus, there was no refinance done here.

    And as the discussion is going here -- the exchange is contingent on the merger actually gaining approval and the change of control actually taking place. If there is no merger, then this exchange does not go through... but that is irrelavant at that point. Because if there is no merger (no change of control), then the lendors can't put the debt on to XM anyhow. XM will continue to pay the 1.75% coupon until these notes mature on December 1, 2009.

    But I'd expect them to be refinanced for real -- long before then.

    FWIW, this contingency has nothing to do with XM being "in the poor house" -- and everything to do with the "Fundamental Change Put" (see section 5.1 of the Indenture certificate) that the lendors hold over XM. This exchange was necessary to prevent the lendors for putting $400 million on XM, should the merger go through. XM still has another $800 million more that will need to be exchanged -- to prevent them from putting the debt back on XM to pay back immediately when control changes hands. Exchanges prior to mergers are normal and quite common. This was all stated in the merger agreement between XM & Sirius, from March of 2007.

    BTW, if there is no merger -- then XM has approximately $400 million in maturing debt; plus their $250 million in credit facilities, their $100 million term loan and the GM facilities all expire. XM will refinance the $400 million with new bonds; the credit facilities and the term loan can and likely will be extended, which is also quite common. That will take XM well past 2009 with their debt. Meanwhile, Sirius is in a similar situation -- in that they have $300 million in maturing debt in 2009... and has the need for significant amounts of CapEx funding needed between now and 2010. This will likely be completely with new debt financing.

    Both companies are putting off doing anything with this right now, due to the better negotiating position both will be in, if the merger goes through. If it does not, you'll see both move on the above refinancing/new-financing as quickly as possible, IMHO.


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    Last edited by homer985; 07-09-2008 at 04:15 PM.

  6. #6
    zcurzan is offline
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    thanks for clearing that up

  7. #7
    zcurzan is offline
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    Homer,

    Isn't this the same information from the press release a couple weeks ago?

    http://biz.yahoo.com/ap/080711/xm_sa...otes.html?.v=1

  8. #8
    homer985 is offline
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    Quote Originally Posted by zcurzan View Post
    Homer,

    Isn't this the same information from the press release a couple weeks ago?
    Yes, XM canceled the exchange offer and is just amending the current indenture agreement instead.

    My guess is that XM had 94% of the holders to already agree to the new terms, but they hadn't reached the other 6% yet. So XM made a publicly announced exchange offer to increase the coupon in exchange for not putting the notes on XM if the merger goes through. Then when the other 6% heard about the offer, they contacted XM and agreed to the terms. And since they got the go ahead from all holders of the Notes -- they just decided to amend the indenture to the new terms, rather than going through the exchange process. This way probably will save a few bucks.

    There's no difference in the end... amending the indenture will do the same as exchanging the Notes. So going forward, the coupon on the Notes is now 10% and the holders won't put the debt on XM if the merger goes through. If the merger doesn't go through, then the coupon will drop back down to 1.75%.


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