Sirius announced today that they have completed their $250 million term loan through Morgan Stanley. The loan, which was announced a few weeks ago, was well received in the marketplace. Today’s announcement clears up the interest rate of the loan which is LIBOR plus 225 basis points equating to 7.625%.
We had speculated on the loan’s terms in a previous article titled “A Deeper Look At Sirius’ $250,000,000 Loan”, where we stated that the borrowing rate would be below the 9.625% of Sirius’ previous loan, and that Sirius could effectively place the money into conservative investment vehicles which actually pay out interest. A strategy such as this can offset the cost of borrowing until such time that Sirius actually needs the cash. If Sirius were to earn 5% on the money, the NET effective interest rate would be only 2.625%.
At the end of the first quarter Sirius had $260 million in cash remaining. Respected analysts such as Robert Peck of Bear Stearns estimate that Sirius' cash spending for the balance of 2007 to be about $80 million. This would mean that Sirius can operate without touching the cash borrowed from Morgan Stanley, and or scenario of Sirius being able to invest the funds in something like treasuries is very plausible. At the end of 2007, we could see Sirius with $180 million left from existing cash and $250 million from this loan for a total of $430 million.
For comparison purposes XM’s Senior Secured Revolving Credit Facility is written at LIBOR plus 150 to 225 basis points with certain other provisions that outline alternative base rate, to be the higher of the JP Morgan Chase Prime Rate plus 50 to 125 basis points or the Fed Funds rate plus 100 to 175 basis points. The facility also calls for 37.5 to 50 basis points annually on unborrowed funds.
XM’s GM $150 million Senior Secured credit facility is at an annum rate of LIBOR plus 8%.
Position - Long Sirius, Long XM