Today Sirius Satellite Radio announced that they have obtained a $250,000,000 short term loan through Morgan Stanley. This news was received well by Wall Street, as such a loan provides a cash cushion for Sirius, and alleviates concerns relating to dilution….if there were those who still had concerns.
Terms of the loan carry similar covenants to those that were established in a previous loan for Sirius. That loan had did not restrict Sirius from obtaining the $100,000,000 credit facility from Loral. The Loral facility is untapped, and it would appear, given the fact that the covenants are similar, that the Loral facility gives even a deeper cushion for Sirius.
With end of 2007 Cash remaining conservatively estimated to be at about $180,000,000 by Robert peck of Bear Stearns, this new cash would spike that total to roughly $430,000,000. This new infusion of cash could well mean that Sirius can stay comfortably above $300,000,000 in cash going forward. Such news would be welcomed by the investment community, as it shows clear cash stability, and a very low chance of stock dilution in getting to profitability. This loan also demonstrates that the bond market does not see an issue with debt for Sirius, which is also a vote of confidence in the company.
Investors may gain confidence if cash burn is perceived to be under control, and the company business plan has light at the end of the tunnel. With each passing quarter, indications on the financial statements indicate the losses are narrowing and revenue is rising.
Position – Long Sirius