Business on the weekends in the financials is becoming commonplace with deals being cut, and major decisions being made while the rest of America is trying to have quality time with their families. this weekend we saw major activity once again. Lehman Brothers is going bankrupt, Bank of America bought Merrill Lynch, AIG is in turmoil, and even companies like Washington Mutual seem to be looking for a way out of a financial mess.
The depth of lenders and the ability of institutions to handle new debt is looming everywhere, including Sirius XM Radio, which have desires to refinance about $1 billion in the coming months. For a company like Sirius XM, the issue is paramount because it is their debt that is looming and holding the equity down.
It seems with each passing day, the the list of potential suitors for the Sirius XM Radio debt is getting smaller, and this makes it more difficult for the debt to be shopped around. Additionally, those potential suitors that are still standing today, may not be in a position to negotiate anything. It seems all of those that would normally handle deals such as this are currently more concerned about their own financial situation, and their ability to focus on a Sirius XM radio deal is limited.
As the landscape in the big financial picture keeps changing, the level of concern by the street in the SIRI debt takes on a posture that simply would not have existed a year ago. The situation may have been far different if the merger process could have been shortened by only six months. People have oft tried to quantify exactly how much of a toll that the prolonged merger process has had on the company. In point of fact, that toll can not yet be quantified because the ramifications are still with us. Until this debt can be handled, the drag on the equity is still happening.
From a cash flow and revenue perspective the SIRI debt may have looked attractive to lenders only six months ago, but now times differ, and those would be lenders have more grave concerns on their minds. Simple survival precludes new business.
Whether you believe in the sector, or not does not really matter. The question at hand is whether Sirius XM Radio can either weather the storm, or get the financing handled in such a way that the cash flow model remains stable, or that is not dilutive to the stock. Only time will tell, but given the situation with potential suitors, the debt issue does not look to have a short term solution at this point unless Sirius steps to the table with a firm such as Goldman or Bank of America.
At this point the concerns with Sirius XM Radio may be more about the financials sector than with the operations of the company. In the past, it has been enough to simply worry about a company you invested in. Now, you have to worry about the companies that in the past have been the lenders as well.
There are likely still some rough roads ahead with the satellite radio sector, as well as any other sector. What is happening in the financials will have a trickle down effect. Right now those seeking lending are in a game of musical chairs. The difference from the past is that a lot of those that used to host the musical chairs game are now players in it as well.
Investors in this sector would be smart to watch the financials over the coming weeks. Lehman is gone, Bank of America has bought Merrill, and AIG is currently looking like a boulder on to of a cliff. Next weekend may well bring another round of turmoil. Until this situation eases, or until a firewall such as the Merrill deal stops the snowballing effect, anything that surrounds debt or raising capital will not be seen in a positive light.
Position: Long SIRI, Account With Washington Mutual.