Sirius Ace in the Hole
Wall Street pundits are betting on the future of Sirius XM with baited breath. They have laid down their chips both for and against Sirius XM being able to pay off their February 09 converts which are due in just a few short weeks.
Fueling the fire, writers from around the web are throwing around such terms as “bankruptcy” and “shareholder wipeout” on an almost daily basis. The problem with this is that these writers are not listening to the facts. Sirius XM has already begun to pay down its debt and this act alone is a sign of a company not looking to go into default.
Mel Karmazin, on numerous occasions, has publicly stated that bankruptcy is not an option and that the remaining debt is already being renegotiated on several fronts. It’s what has still not happened that speaks the loudest as to what the outcome will be. At any time over the course of the last few months, Sirius XM had the option to massively dilute its common shares to raise cash and follow that act up with a large reverse stock split. The fact that this has still not happened leads me to believe that those betting against Sirius XM repaying its debt are betting on the wrong horse.
It should also be noted that the Sirius XM (SIRIW) warrants, which have a strike price of 3.18, are trading up 1600% above their .05 lows. Sirius XM has an ace up its sleeve and it is yet to be played.
Brandon, I can agree with alot of that, but lets not forget that there have been many CEOs that have stated bankruptcy is not an option only latter to file for it. I put that into the same catagory as the blanket statement at the end of each report about their being a possibility of them going bankrupt if this or that is not done.
I must have missed something, and I’m not being sarcastic. What is the ace up their sleeve you are referring to.
BTW, if you are thinking that the ace up their sleeve is an equity offering at 11 cents a share, I would hardly consider that an ace. More like 2,3 off suit.
The worst is 2-7 off suit.
With 2-3…one can still make a straight.
do we know exactly when ie what day these feb 09 converts are due?
please answer sirius buzz
The Feb converts mature Feb 15.
Also I believe they can get a 30 day extension on the feb 15 date
There are a lot of possibilities. (1) JPM and Evercore are supposed to be developing a restructure plan by Mar 1. (2) In Dec, SIRI reported a $100M improvement in 2008 EBITDA, which may point to further improvement in FCF. (3) No one has stressed any difficulty in renewing the May bank facility. (4) We have never received any hint of the number of takes on the “Best Of” plans which offer an extra $50/year per take. (5) Tyler Savery has projected an extra $50M from the multiple subs price hike. (6) In separate articles, Savery has estimated the possibility of $200M-$300M accelerated cash flow from internet streaming fees. (7) SIRI was supposed to have a $100M line with Loral which was apparently contingent on a $1B market cap and had to be exercised by mid-Dec. However, SIRI is one of Loral’s major customers and may have negotiated exceptions or extensions that have not been reported. (8) There is a $125M escrow account for Major League Baseball and negotiations are supposedly underway to add MLB to the “Best Of XM” plan. Some release of funds from this escrow account, possibly substiuting a bond, may be possible. (9) At least a little more stock-for-debt swaps may be possible……. And who knows what else???
lol 2-3 off suite, which at .12 cents that seems about right. Just keep faith everyone.
My wife works for Charter Communications. They have some serious debt issues. They have hired counsel to explore bankruptcy as an option. They did NOT pay their last interest payment even though they had the cash on hand to do so. I have not seen any actions by Sirius that compare to what Charter is doing. I do feel Charter will file for chapter 11 if the debt holders don’t agree to new terms. At this point I don’t think Sirius will file.
Correction—I dont think a business with a $2.7 Billion revenue potential will file for BK. Brandon, these are the same Analyst who said there was a slim to 30% change of merger being approved. These clowns need to get a job at FOX news network.
The strike price for the SIRIZ warrants is $3.18/4.6 or $0.69. $3.18 was the strike price for the converted XMSRZ. I own 47 of these at a basis of about $1000 and expect them to expire worthless. Lessons learned, SIGH.
Brandon, the SIRIW and SIRIZ warrant issues are both former XM warrant issues that converted over via the merger. I think you may have some of the info crossed up… no biggie…
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The SIRIW are the warrants that were issued with XM’s 14% Senior Secured Notes (due 2010) which were sold in March 2000. That debt issue is no longer outstanding, however the warrants do – and vest on 3/15/2010. They originally issued 325,000 of these warrants, which convert into 8.024815 shares of Class A stock (approximately 2.6 million shares) — at a conversion price of $45.50 per share. Over the last 9 years, the strike price had been adjusted down to $45.17; and now post merger, the strike price would obviously be adjusted down to $9.82 (math: $45.17 / 4.6). The 325,000 warrants would also split the shares issuable into 36.91 Sirius shares (math: 8.024815 x 4.6) — which would be 11.99 million shares, if all warrants converted. But since the stock is well under $9.82, they have very little value left in them.
I do believe that most of these warrants are still outstanding, as XM noted last year that they were still reserving 2.6 million shares in case they are converted. The strike price on these was not $3.16… you are likely confusing these with the SIRIZ warrants…
The SIRIZ warrants were originally the XMSRZ warrants, which were issued again to the holders of XM’s 14% Senior Secured Notes. They were exchanged during XM’s early 2003 refinancing… XM issued 300,200 of these warrants to the holders. Each warrant would convert into 85 shares, at a conversion price of $3.18. They were set to vest and expire on 12/31/2009.
XM had been buying these back over the years – and accepting exercises by holders too. Over the years the strike price dropped slightly to $3.16. Now post merger, the strike price on these warrants is now approximately $0.69 per share and into 391 shares per warrant.
XM noted that they were reserving 7.4 million shares for these warrants to convert at the end of 2007. With each warrant convertible into 85 shares — that would suggest that about 87,000 of these warrants were stilll outstanding… but with the strike price so low, I would not be surprised if many of those were converted around the time of the merger. Assuming they did not — then these 87,000 XM warrants would now be convertible into approximately 34 million Sirius shares (math: 87,000 x 85 x 4.6).
The value of the SIRIW and SIRIZ warrants is not really relevant, IMHO. I purchased the “Z” warrants when they first traded in February 2003 and did very well with them. Many XM longs that I know bought them – and we all became very familiar with them. The price on them ALWAYS reflected fluctuations in the price of the common, not the other way around. The only notable differences was in the premium — because warrants are essentially like stock options. The main reason I believe we’re seeing wild changes in their pricing could be due to holders working deals to exchange them into whatever they can with Sirius. I don’t know that for a fact, but I wouldn’t read too much into price changes in the W warrants, which are way under their strike price; and the Z warrants, which likely have very few remaining oustanding.
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I did forget at least one on my previous post. (10) The $300 lifetime sub offer to existing XM subscribers. Motley Fool pointed out that 1M takes would generate more than enough cash flow to pay off the Feb debt.
if ur holding siri now is the time get rdy to make some money
what do you think of the possibility that the fee increases and new online fee structures were contingents required to get approval for refinancing currenty in negotiations? Maybe the company they are working with is asking for these.
15 days…time will tell
GLTA
I have noticed that the bid/ask has tightened up over the last few days. Any significance to this ? Maybe less manipulation and ready for a move higher.
isn’t it all manipulation when trades are in the 1000ths? only MMs are allowed or can get away with that. We are not able to trade cent fractions on this stock
Yes you can if you have Scottrade, Etrade will not let you do it though.
I had to put my limiy buy in at .12 and just hope I got it near market and I got lucky and it bought at .1183 instead of robbing me further at .12. Bid/ask was tight at the time.
I put order in for .113 last night. Was filled 3:30 today at Schwab.
used to think that, too…
however, I am able to trade in 1/1000’s on Schwab using my StreetSmart platform.
I am not really worried about the Feb/Dept. Its May/December dept that concerns me. The Government is botching up the market, and no one in Washington seems to have taken any history classes.
I will wait till March 1, and see if Mel can keep his word.
Hoping for all of the dept to be refinanced into one nice little bundle. 🙂
Dread is right here. The Feb debt is done. It doesnt matter how they pay it they can pay it. If its in stock as they have been doing or cash they have the means to pay that debt. We are fine until the May debt comes due. The time between now and may is what we are going to have to watch. Will they get refinanced, Can they get money from somewhere to pay this may debt. Will credit markets be loose or still tight? The dec debt doesnt really concern me at this point though either. If lenders see that they can make the Feb and May debt payoffs they will likely lend for the Dec debt. Lets keep in mind that if siriusXm gets past this year its going to be a smooth ride until about 2014 guys. Once this debt issue is settled even the most bearish on satradio will have to become bullish. There is just no way to ignore it. People buying in at these levels are taking risk, No question. The reward is worth the risk in my opinion. I look for a 4th quarter report to be right in line with projections and siriusXm to keep on going from there.
It will be interesting to note how much cash on hand they have when they report 4th quarter too.
Come on….. let’s not get crazy here. The Feb 09 are notes to be paid, the May is a bank credit agreement. This agreement and its usage was done by the creditors and XM pre merger. No surprises to them…..
SyNiSteR/cos1000, Well said!!!
Is it just me, or is everyone way to emotional about this?
If your an investor/trader, then you know this rule!!
If u bought 10,000 shares @ say $3.00 per share that =’s $30,000. Know if u have that $30,000 on the line and u don’t take the risk of buying another 10,000 shares @ .12 u have to be nuts. If the stock files bk your out $31,200 (another $1,200). If the stock survives and it goes to $2.00 in 2 years you are @ $40,000. If it gets to $3.00 your @ $60,000. So on & so on. Just a something simple to think about.
Neal, your math is right but the psychy is wrong….. we need to see upside potential now before putting new money in. JMHO and I already have a good deal of money in…. good luck my friend. If it all goes right we’ll have opportunities down the road on the upswing……
I am not worried about the Dec debt, they will pay it with cash with all the money they are going to be making with online subscription, merger related savings and extra money from the “best of” channels. I am only worried about the May debt. If they can take care of that then we are ok.
May is not convertible debt, so tehy should be able to extend the loan out at least another year, hoping at similar terms.
A factually inaccurate article on many fronts . . . not the least of which is the issue of bankruptcy.
Maybe if this writer had bothered to attend the December 18 sharehlders meeting (or for that matter, anyone associated with this website, which is after all called Sirius Buzz) he would have heard Mel Karmazin distinctly say that he did not THINK bankruptcy would be needed but would not rule it out.
That is quite different than reporting that Mr. Karmazin has stated that “bankruptcy is not an option.” And just in case the author was sick and couldn’t attend the BOD meeting . . . he certainly would have been able to read the New York Time Business section article posted shortly thereafter in which Mr. Karmazin reiterated that he did not THINK that bankruptcy would be necessary but could not rule it out.
homer985 . . . Shame on you!! It IS a big deal to include that type of inaccuracy in a published news story in which the author purports to have some level of expertise.
Charles. I am sorry. This type of reporting damages the brand. There is no excuse for these type of factual inaccuracies. It is an embarrassment and irresponsible and diminishes the credibility of the site.
Mel does need to say he does not “THINK” they will have to file bankruptcy because he could be sued if they have to. This does not mean it really is an option that he is entertaining with other ammunition they have at their disposal still.
We know they have enough cash for Feb debt and we’ll hear 4Q cc before it is actually due.
the article states that “Mel Karmazin, on numerous occasions, has publicly stated that bankruptcy is not an option . .”
That is NOT what Mel said. You can spin this anyway you want . . . but as Mel said at the BOD meeting . . “IT WOULD BE HELPFUL IF WE DEALT WITH THE FACTS”
Bankruptcy IS an option. IS. Ask Tyler Savery whether or not he thinks a pre-packaged bankruptcy plan has already been drafted.
Please. Can we at least be a little bit objective here?
and BTW . . I am NOT saying that there are no other options. Clearly there are. I am only saying that NO option should be removed from consideration. It is misleading and harmful to investors visiting this site.
BANKRUPTCY IS A REAL OPTION that is, has and will be considered IF NEEDED.
I agree, it’s the last option I would hope. I can’t see how this would be a good think because it’s a consumer product and you could have mass cancelations if they went that route.
Facts are the facts and no one can deny that bankruptcy is an option for this company. I could, as you acknowledged, give other options, but I will just say that I agree. We will all know what the future course is soon enough. I appreciate you opinion…..
I just have to say as long as there are 3.5 billion shares to dilute bankrupcy is not a real option yet. By the way cos1000, you know what I said a long time ago about the Feb. and May debt. not being the reason for a bankruptcy. What did I say not to long ago, that after the Feb. debt was handled, people/analyst were going to move on to the May debt. I will say it again, the May debt is already basically handled also (between COH,FCF from 4th Q, and dilution they have enough to take it out even with out any credit being extended). Now as I said before if there was any worry at all, it would be with the Dec converts, but as Mel has said by that time the company will be very close to profitable and should be easyer to finance. Also I figure those converts are as willing as the Feb. ones were to reconvert for better terms. So at worst they get terrible terms on the converts. Now I doubt that the terms on just those converts are bad enough to send them into bankruptcy latter. Simple math there was at least 300 million in savings from the merger the intrest on 400 million is not going to wipe out that 300 million in savings.
I just dont get it, it is easy. As cos1000 said could they file for banckruptcy, YES, but anyone can at any time, so why dont they? Because the consequences out weight the benifits. SIRIXM is 10 months away from being solvent, and being able to handle any debt they have from that point on. Most of the contracts are coming due within a year or two, so they can take care of them then, of course they wont have the judges help in it but once again the consequence/price of having the judges help is to high.
bankruptcy is an option for EVERY business; however, it is the option of LAST RESORT.
everyone is discussing bankruptcy way too much here and elsewhere, however,…
and congress has no clue as to what bankruptcy is in their feeble attempts to force the auto industry into it.
if you understood what bankruptcy is and does and can do for a company, you would all understand that bankruptcy is not really a viable option (albeit, it is still an option of last resort) for the auto industry, and even less for the sat-rad industry (i.e., SiriXM).
This article is complete and utter horse hockey.
Sirius is in debt up to their eyeballs and the are a now a penny stock that lost over 95% of it’s value in 6 months.
Mel may have his back up against the wall but to believe that they won’t go bankrupt is delusional.
All I know is that I am out over 6k and all I can do is hold on to it and see where it goes.
Personally, I would be very surprised if SIRI filed for BK, but we shall see very soon.
John/163888 . . your post above is well-stated (I tried to type up there Charles but no “reply” button). If Brandon’s article had been written in the style of your post . . . as a well-reasoned opinion piece supported by a series facts, with caveats where appropriate . . . I would have had no objection.
Your argument for no bankruptcy is persuasive . . I have played-out that scenario in my mind many times. The one place I get hung-up is as to COH. At last report it was 360 before any burn during Q4. I do not think they will be willing to further deplete cash reserves based on Mel’s experience at CBS when he had to “go into his pocket” to make payroll . . Q4 is an unknown at this point.
My guess is that Goldman Sachs will get what Goldman Sachs wants . . . which is more favorable terms on a new series of converts (I am guessing their position is about $150mm). The residual, 26 and change, will be taken-out via debt for equity.
Then all eyes turn to March 1st . . . not May! We will then be treated to the unveiling of the Evercore roadmap. Perhaps the May debt holders/bank will extend/renew at reasonable terms, or else! That leaves the December converts with authorized but unissued shares still in the arsenal and ready to do piece-meal debt-4-equity exchanges (read: dilution), presumably at a higher share price once Feb and May debt are adequately addressed (but . . . the street may not like rolling the earlier debt – ie kicking the can down the road – unless the revenue side is really strong) . . . some intermediate guidance here would be helpful. If the street doesn’t like the Evercore plan, I worry about private equity taking us out on the cheap . . . . better of course than bankruptcy but still leaving pre-merger investors unlikely to be made whole . . . even at enterprise value.
Still though, there are flies in the ointment that should not be ignored, including recent changes in the competitive landscape. Further investment or new investment at this point would have to be viewed as a calculated gamble, not a sure bet. The real possibility of bankruptcy, whatever weight you choose to give it, does have to be factored-in to those permutations.
And last I checked . . . a gun-to-the-head trumps an ace in the hole everytime! (I saw that on the History Channel John, or was it Deadwood?)
Sirius Roadkill, I think that is because there was no more room, if you notice it got shorter with each post. If it let you, you would have had a post 2″ wide by 3′-0″ long.
Now dont get me wrong here, I am not saying it is totally out of the question, but that it is not likely. I also dont think Mel is wanting to give GS what it wants. I think he was and most likely is still pissed at them. Also look at it this way if he was going to do that, why not have done it before now and skip all of this pain. I believe as I said before if he wanted a easy way out he could have given GS what it wanted on the converts. Then he would have also not only have taken out the remaining Feb. converts with that, but lets face it Weinkies would not have bashed it because GS would have taken care of the rest of any financing that Mel could not do himself (basically act as a safty net) analyst would have known this along with GS and the stock would have soared. There by making GS a lot of money on new converts and the shares that they had and are buying.
I get My confedence in Mel from reading about him. There were a few articles out a little while ago. One was interviews with people that worked with him and now compete against him. You could almost hear it in the words that they were shiting their pants that they are now going to have to compete against him. I remember one comment from that article that said Mel is the type of person that if you dont play his way then he well take his toys and leave.(that can be take in a good way or a bad why) One thing is clear from that kind of a comment you might be able to see how he might be handeling GS. The next comment I remember is he treats 20 million like it was 20 dollars, basically from the article you get that Mel is frugal, and that he doesn’t want to lose 20 dollars any more then he wants to lose 20 million. Now from that I get that when he has sunken every dollar he has ever made from SIRI, plus some of his own money, he will not choose bankruptcy until it is absolutely the last option. Lets not for get he has put alot of his time and money into this company, he is not going to just let it go down the drain.
well said
I dont know was it the marksmanship show? I missed that one.
It was the episode where Wild Bill Hickok gets shot at the poker table . . . I think that was Season 1 . . . check this out:
“On 2nd August, 1876, Wild Bill Hickok was playing cards in Deadwood. Jack McCall, seeking revenge for the death of his brother, shot Hickok in the back of the head. At the time of his death, Hickok was holding a pair of black aces and a pair of eights, and this became known as “A Dead Man’s Hand.”
Interesting stuff, huh? Damn I miss that show!
>>>Sirius Roadkill said:
“Shame on you!! It IS a big deal to include that type of inaccuracy in a published news story in which the author purports to have some level of expertise.”
Dude, I wasn’t talking about the BK discussion in his post or any of his other conclusions — my “no biggie” statement was his reference to the conversion price of the SIRIW warrants… that was it. I wasn’t talking about his conclusions or his other statements of what he said were facts.
Don’t read too much into postings by anonymous posters… it was a simple post by me pointing out a simple correction. It surely didn’t mean that I thought the rest of his post was “no big deal”… I thought I made it clear that I was just clearing up the factual details of what each warrant was.
Sometimes a duck, is just a duck… if you know what I mean.
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homer, I most definitely hear ya on that . . . .
Perhaps I should have been clearer . . . I was in fact actually referring only to your comment about the warrants (or at least that was my intent).
I did not interpret your remarks as passing judgment about the bankruptcy issue . . . I know from following your past posts that you typically stick to the math and or facts . . . as you did here.
I do feel, however, that you did give him a pass on the warrants by saying “no biggie.” (as relates only to the warrants).
The warrants-issue involved basic, verifiable, facts which were either incorrectly reported, incorrectly stated or incorrectly interpreted by the author in such a substantial way that a free-pass is not justified.
So that’s all. I knew you had not taken a position on the balance of the article . . . and I know it’s not your style to hammer anyone . . . and I respect that and I respect the idea of allowing someone to save face.
Again, I just feel that the author needed to be called-out on what I consider a significant error (jmo) . . . it has the potential to be terribly misleading for those who may be less informed about the current state of affairs.
I hope I have written this post more clearly than the prior.
Sorry for any confusion . . .
Fair enough, no prob… that was well explained. And yes, I will typically give people an opportunity to save face — because I dont want to come off as arrogant and pompous.
But as was pointed out to me a long time ago, message boards and emails can be dangerous for communicating… because it removes the human aspect of the communication. Where you can look into a persons eyes and see their facial expression — and know where they were going. But electronically? It’s so easy to miscommunicate — or misunderstand what a person was saying; it removes a key element of communication.
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So should I average down one last time and keep repeating my losses?!?. When does a stock stop becoming a speculative gamble and more a sound investment? Well I guess we’ll all find out in the coming days. This is just another speculative article but thanks anyway. Mel was right, I’m not that “sophisticated” but I do like satellite radio. Boy, am I paying for it! GTLA.
Just in case anyone is getting their hopes up, allow me to burst your bubble.
This is a direct quote from the Sirius XM 10-Q form:
“An inability to access additional sources of liquidity to fund our cash needs in ’09 or thereafter or to refinance or otherwise fund the repayment of our maturing debt instruments could adversely affect our growth, our financial condition, our results of operations, and our ability to make payments on our debt, and could force us to seek the protection of the bankruptcy laws, which could materially adversely impact our ability to operate our business and to make payments under our debt instruments.”
Granted this statement was made a few months back but NOTHING has really changed for SiriusXM on the debt/credit front.
Tim did you even bother to read the first comment on this article. It covers what you said, the fact is most companies have that kind of statement at the end of their reports. I think you call it a disclaimer. It helps in minimizing class action law suits.
Tim,
Why not just publish any company’s “Risk Factors Section” of their Prospectus, 10Q or 10K. Like going for surgery or taking a new prescription, its called Informed Consent and Full Disclosure before going under the knife or buying a share of a company’s stock. It is as John said above, part of the company’s Risk Management process and every investor’s responsibility to read it as part their own due diligence.
So to your point that the statement was made a few months back. The statement has been made ever few months as part of its 10Q, and has been for years. Nothing new here….
Tim
Have you checked out other companies 10-Q’s. Most of them have a statement similar to the one in SIRI’s. As Cos1000 and john stated above, any company can file BK at anytime. Stop being an antagonistic jerk.
sorry did not read your comment before I wrote mine.
If you don’t like my posts, don’t read them.
What makes it difficult is that your posts sight boiler plate language from company documents as though it is news. It is the evidence that you give to “burst the bubble” of anyone with a more positive view on the company and stock’s price potential that leaves a reader of your post feeling flat to negative on your view. I still read them because I am always looking for useful insight regarding the puzzle that is this company….
Everyone is contributing in one way or another……is this not the greatest? Mel, you and your management team are pulling off the stuff you meant to do. Eventhough Wall Street Bulls have been overcome by those that profit from doom and gloom, you showed them with your persistant programming gaming that never loses a beat and a pie in the sky gleam. We are almost at the turning point and Mel is going to pull this off and be the darling of the cover story that he and everyone at SXM is worthy of. The antenna (never spelled it before) is nearly gone guys……get ready for the next Benjamin future trick, SAT radio is here to stay. Long term, there will be so many contributing factors that SAT radio will eventually be filled with commercial channels and they will be filled with great things that you can literally print out from coupons on your dash board or on your home printer. SXM is a company who really has a path to stardom and when you close your eyes, 10 years passes, and wholly molly, you will not recognize the bright things before you. Watch out people!!!!!!!!
Here is the rest of the unreported info regarding Barclays analyst published on Barron
http://online.barrons.com/arti.....35207.html
HIS TARGET FOR SIRI IS $1.80
still sirius,
Tim has always been a jerk and due to his hidden agenda he will remain one.
SIRIUS XM Stockholder,
You don’t know me, have never met me but you feel qualified to state that I have always been a jerk?
What is my hidden agenda, Good Customer Value and Service?
Grow Up.