After reviewing the latest reports from Merrill Lynch and Goldman Sachs, the only apparent fact in this sea of uncertainty is that one will be right, and one will be wrong. True, Goldman has been correct thus far, yet everyone knows past performance is no indication of future results.
In what appears to me to be an ironic twist, Merrill has become a lot less bullish while Goldman has become a little less bearish. In Merrill Lynch's latest report, a lot of attention is now being paid to the 2009 debt issues that are approaching. Citing the worst credit market in decades, Merrill's report is full of potential negative impacts should Sirius not be able to achieve its refinancing goals which include everything from diluting possibilities to shareholders being potentially wiped out in WAMU fashion. Merrill again reiterates that they do not see this scenario as likely.
I found the Goldman report much more interesting however. For starters, they lowered their target to .50. On a percentage basis, that doesn't present much downside risk relative to their recent downgrades, although that does not include further dilution or the total loss of shareholder equity. They cite key risks as "faster-than-expected merger integration and financial outperformance." Key risks? Those sound like risks to short-sellers and not shareholders.
Both reports seem to give much more attention to the May 2009 loan, and both seem to concede that the February 2009 converts are not a major hurdle anymore.
My take on this is to hold for now. The Senate today passed the 25 billion dollar auto loan bill. This should free up money for the oem's to use elsewhere, including the potential for the issuance of lines of credit to Sirius XM. Every dollar that can be deferred by such a plan could be used to eliminate the debt problems. The pending government plan to restore the credit markets should be approved by Monday as well.
As for the key risks cited above by Goldman, faster-than-expected merger integration is certainly plausible. In fact it seems the company has done little else thus far this quarter. Financial outperformance seems highly unlikely, unless the company can execute on its "best of" programming packages. XM subscribers potentially joining Sirius for Howard Stern and the NFL can certainly lead to increases in revenue, and those 20 million nonsubscribed radios already on the roads may see new life as GM owners reactivate the service to get the content available to them on Sirius. This won't become reality unfortunately, until a full quarter of the combined services can be effected.