Lehman, Merrill, AIG, And Debt
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.
Any chance of GM and Toyota helping to finance the debt? When companies are in trouble, they usually go to suppliers for help. I would consider the auto makers as a type of supplier or stakeholder, and I think they would be the go to guys. Fine GM has its own problems, but they are still liquid, and Toyota by most counts is doing fine….
Tyler . . . a Freudian slip I am sure but shouldn’t the last paragraph, 2nd sentence, read “Lehman is gone” and not “Goldman is gone”?
On balance, a well written article with a realistic assessment of the current credit environment and the shrinking liquidity that may ultimately effect commercial banks and no doubt reach beyond the financial sector, including strategic partners in the auto industry . . .
Roadkill….
Sharp eye. Issue corrected
Mel Karmazin could lend SIRI the money if he wanted to. He alluded to that in his Merrill Lynch speech. All Mel has to do is say that he WILL do it (and then do it when the time is right) and the February debt issue is over.
if he lends them the money he could set the interest rate for whatever he wants right? 😛
Mel doesn’t have that kind of cash… what makes you think he has 300 mil?
someone said he was worth $8.5 billion.
maybe he’ll just chip in alittle.
Are we screwed now and not gonna be able to get the financing?
Mario, try the google. You will be surprised to learn that Mel does have that kind of cash and much more. IMHO, Mr. K could cut a good check for $300 mil this instant and still be a very wealthy man.
From the WSJ article:
Satellite radio’s growth slowing and Wall Street rattled, Sirius XM Radio Inc. Chief Executive Mel Karmazin last week joked at an investor conference about how difficult it is to refinance some of the company’s debt on reasonable terms. “Am I going to lend the company the money?” Mr. Karmazin asked. “I hope not. I hope we don’t get to that.”
HEY! Check this out, Best Buy just bought Napster! http://www.appleinsider.com/ar.....llion.html
Come on! Napster is being bought and NOT Sirius? It’s only a matter of time. 🙂
HEY! Best Buy just bought Napster!
Come on! Napster is being bought and NOT Sirius? It’s only a matter of time. 🙂
One billion is a thousand million. Napster was a piece of crapster.
yeah…i know napster is crapster…thats my point. if a company wants to become more exposed to media….they should buy sirius. 🙂
I think the underlying intention when mel said he hopes he doesn’t have to loan his own money is that 300MM is chump change in the grand scheme.
after thinking about it alot, I chalk it up to typical Mel. He speaks off the cuff like that ALOT. I know not the best economic environment to be flippant in…but when you really think about it…Mel pretty much confirmed he’ll get it refinanced WITHOUT further dillution.
That being said…this is one crazy market. Do you believe whats goin on? Scary stuff…but at the same time exciting. These kind of bottoms don’t come along often…and it makes me WISH i had more cash on hand to trade with right now.
There is no justice! Napster goes from $1.20 to $2.50 in a day after Best Buy announces it’s bid to buy it.
So friggin Napster man….more than DOUBLES in a day….and SiriusXM(a TRUE media company) is languishing without a bidder at these INSANELY low prices.
I just don’t get it.
I think the gov’t does not want or need the publicity of a SIRIXM fallout. It create a ripple that might spread to other sectors such as autos, radio, then the apples.
I am willing to bet that the fed will continue to inject liquity into the market to offer help to those businesses not pisoned by MBS’s or other CDO’s.
I doubt the government will care. They let Lehman die…and THAT was a 158 year institution!
No…they WILL help AIG if need be.
I know there is talk of Detroit asking for a handout too….and I’m torn about this. Part of me thinks the government will do it…since it’s an election year….but the other part thinks they won’t….or…rather CAN’T.
I mean the war in Iraq is costing HOW many Billions a month? Add to that the floods in Texas. This government is spread so thin you could see thru it!
Plus the fact that they’ve already bailed out so many other institutions. They can’t keep doing that. AIG will be the last in my opinion.
But even IF they give money to Detroit…I DOUBT it will BUMP Sirius stock at all.
And the Government will NEVER give Sirius a direct handout. They dragged the merger on for almost 2 years. You think they care? It will NEVER EVER HAPPEN IN A MILLION BILLION YEARS. The sooner you rid yourself of THAT delusion the better off you’ll be.
No, the ONLY way Sirius can see itself thru this is if it can weather the storm and then PROVE earnings. And thats going to take TIME.
The thing that bothers me is Mel had 18 months to get financing ready in case the merger went through. He sees the books. He could estimate what was needed at any given time. Yet he says the converts were his only option. Can anyone explain why a plan was not in place?
I think the thing to keep an eye on is the liquidity of the comapny. If the revenue continues and churn holds or improves, it will go a long way to securing the needed financing.
Dave,
I suspect this was something similar to a no income verification loan where Mel could talk all he wanted about Sirius’s financial situation but was not permited to provide the type of XM documentation neccessary to obtain better financing. Thats just my amateur impression.
We got any Wall St/Banker guys out there not packing up their belongings to answer this one? Good question.
Someone (like Mel himself) will pick this up soon. 3.1 in debt and 3.0 for the shares. 6.1 B total of XM and Sirius….laughable, yet thanks to Mel, Parsons, Panero and most of all, the FCC here we are.
Brandon, I can’t recall if URLs are allowed, so for now check out this article, today, on The Motley Fool: “Will the Fed Bail Out Sirius?” It’s actually fairly objective and recommended reading. Your thoughts on it would be appreciated.
So Plowboy according to your theory, then the pps would go to $3 right.
Man. That sucks. But at least I’d break even.
Who woulda thunk? We could have sold 6 months ago as a stand alone company for more than that.
Oh well. Nothings for sure yet. Gotta wait some more.
Tyler, your thoughts on the article I reference above in my post would be appreciated as well. BTW, Motley Fool’s website today also includes two other articles on Sirius XM. One gives three reasons to buy; the other cites three reasons to sell. Just noting for the record because the reasons have all pretty much been hashed.
friggen, I was going to buy more shares today but checked fire until more is known about executive direction. Not selling. Just not buying for now.
I hear you PM…I’m done “averaging” down too for now.
I’ve done that for the last 2 years…and frankly…I’m not doing it anymore…until like you…I KNOW more about the executive direction.
NOTHING has happened yet….and looks like it won’t until October 6th when the “Best of” begins and the new radios come out. I ONLY hope that Mel has come up with a KICK ASS advertising campaign and commercials for it tho. THis company can cut all the fat it wants and I’ll be fine with it….but it DESPERATELY needs to air a commercial ANNOUNCING to the world that SIriusXM is HERE….WHAT that MEANS and HOW COOL it will be.
If Apple can come up with a great commercial…SO CAN SIRIUS.
They NEED to do this NOW….not to wait for the superbowl. They need to make SiriusXM radio “COOL” again for a whole new crowd. If they had commercials with their favorite cool singers promoting sat radio….it’d creat buzz….and we need ALL the buzz we can get to kick ass this holiday season.
In my opinion, the financials STILL have to make money. If the RE market has dried up, they STILL need to have income sources….What will they turn to?
OR, is it time now for profitable companies such as google or microsoft or the oil companies to establish an investment arm above and beyond what they do now…
Historically, lending money has been a profitable business and it probably will be in the future.
This financial crisis came JUST IN THE NICK OF TIME TO SAVE Sirius!
What you ask…
Had the current lending illiquidity lasted until next February, there was the concern that Sirius could not find refinanicing, and hence the extreme drop in PPS of the stock.
It has now got to the point with financial liquidity that either liquidity will be restored or the entire system will collapse….
If liquidity is restored, Sirius will get finanacing…
But if liquidity is not restored, who cares! Why? That means that the entire system has collapsed and companies will ne going out of business right and left….and there will be riots in the street. The government can’t allow the later to happen, and hence liquidity must be restored, and this coming to a head right now can only help Sirius because now it’s not just Sirius, but the survival of all American business.
shark, reports this morning are that the Fed is about to inject needed luquidity. Multiple foreign governments are doing likewise. Not sure that’s the right solution bucause it is a crutch, but it is expedient. One sage trader this morning made me laugh about the broader situation. He said, paraphrasing, It’s like going to the barn and shoveling through a bunch of crap and thinking there has to be a pony in there somewhere…. LOL!
I assume that the stock price will be down to zero in 7 days since it goes down 10 cents a day
Scot here. Mr.Matthews, in reference to your post yesterday where you mentioned “liquidity” and “revenue”, I have been puzzled for some time about those same issues.
When a company (SiriusXM) shows an income of 200 million a month from subscription value alone, and while understanding that there are operating costs, isn’t it reasonable to assume that with this kind of cash flow that the company has plenty of money to pay back debt?
And with talk of refinancing debt which doesn’t make any sense either, isn’t it also reasonable to assume that there would be plently of outside sources who are willing to lend cash? I just don’t get it….
And by the way, there is one more thing: Since this post was entered at P.S.T., and since I haven’t had my coffee and it’s too damned early for my brain to focus, I can’t think of another thing to say….
I think these coming days will be the end for sirius, but I hope I’m wrong.
Remember the old poster of the tiny mouse defiantly flipping off the fierce eagle? What that big bird didn’t know was that its prospective lunch was backed just out of view to the left and behind some bushes by a pack of dogs. And ya know, I think one of them looked a lot like MAD DOG! Which is to say, perhaps Mel’s marketing minions could eat some vitamins and draft some Sirius XM ads that star the company’s stars to tout the great things coming soon to a retailers, cars, etc. (And pulllleeaazzzeee, somebody in the company light a fire under Best Buy to prominently display the company’s products and service offerings. Yesterday, I again went to Best Buy in my local area to check on product placement, and no change, still on a shelf in the back corner and facing the corner–like in time out at school or something.)