Sirius XM Refinances Some XM Debt
Sirius XM Radio announced this morning that XM Satellite Radio Inc., a wholly owned indirect subsidiary of SIRIUS XM Radio, is offering of $350 million in aggregate principal amount of Senior Secured Notes due 2013 to qualified institutional buyers. The move is designed to seek better terms on what was $350 million of XM bank debt that was originally due this past May.
The story of this debt is long and can be a bit confusing because of various activities since the merger. This offering has nothing to do with the Sirius XM debt that was taken on to complete the merger, but instead what was existing debt for XM. That $350 million was recently refinanced with Liberty Media’s John Malone taking on $100 million of it, and the balance of $250 million financed in traditional methods.
This new offering will refinance, and effectively pay off the $100 million borrowed from John Malone, as well as pay off the balance of the traditional bank debt which now stands at $225 million. The remaining $25 million will be used for “closing costs” as well as general corporate purposes.
Sirius XM is looking for better terms, as well as a slight extension in the time-frame of payback. This new move should create a better cash flow for the company, as well as lower the interest rates which the company is paying. Finalized terms have not been announced.
For Sirius XM investors, the debt picture had been a major concern. It was the debt picture coupled with approaching maturity and a bad economy that had Sirius XM on the brink of a possible bankruptcy filing prior to Liberty Media’s Joe Malone stepping into the picture. The fact that the company is active in restructuring their debt picture demonstrates that not only is the company gaining their footing, but that the confidence of the street in Sirius XM’s ability to repay debt is increasing.
Position: Long Sirius XM, No Position Liberty Media.
Mel is a cost-cutter…and I’m sure he couldn’t bare seeing how the monthly interest payment on those loans was affecting the numbers. I’m glad we have him on our side as I know he’ll squeeze every wasted expense out of this company until it becomes profitable.
John Malone. Not Joe Malone.
Thanks,
I spent half the morning trading emails with a guy named joe. I didn’t even catch it when i proofed! Thank you.
Tyler, good article good point. I think this is a great sign when you can trade a weiner for a ham. Why some people look at this as a negative I can’t understand. If you can trade an interest rate of 15% to say 10% youv’e cut your interest payments by a third. Putting it out there shows the confidence of the company. Which by the way ain’t bad during this major reccesion.
Expect the rate to be at least 15%. It has more to do with breathing room than the rate.
Going to hold you to that. Credit markets are improving. Banks are returning TARP money. People want safe investments again, but are no longer expecting INSANE interest rates. Government bonds are a dud, people are looking more back to corporate bonds again, as long as they see a viable product. Looks like THE SMART MONEY does. Still the place to be with this company, owning the debt, but that is starting to change. Iphone app is just another step.
Agree!!
That original 15% rate was struck under extreme duress . . . plus, the company’s credit rating has improved since that loan was made as well as their amount of cash-on-hand (critical to risk premium).
They will do no worse than 11% on a refi! Quote me. Cut this out and put it under a refrigerator magnet!
. . . not to mention that we NOW have Direct TV as an implicit guarantor of new Siri debt . . think about it.
I have to agree with Tyler — and as I stated on Yahoo yesterday as well, this about refinancing debt that needs to be refinanced. XM is paying out boatloads of cash over the next 12 months — if they can refinance now, they should. Thereby freeing up this cashflow.
Here’s a copy/paste of a post of mine from yesterday afternoon — posted right around the time that Tyler posted his… seems we both saw right through this. Sure, a better rate would be nice, but it’s more about freeing up the $275MM in negative cash draw over the next 12-months than anything.
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Yes, lower than 15% refi is possible, but not guaranteed. Furthermore, Liberty only holds $100MM of the $325MM being repaid. The rest is held by JPMorgan.
The problem is this… the credit facility is split into three tranches. XM has to make ammortization payments on these tranches over the next 2 years.
With JMP’s holding of $250MM, XM is paying $25MM quarterly this year (for a total of $100MM); then the final $150MM is owed on 5/1/2010.
With Liberty’s holding of $100MM, XM needs to pay $25MM on 3/31/2010; with the final $75MM due on 5/5/2011.
So as you can see, XM is paying $100MM of the $350MM in 2009; $175MM in 2010; and $75MM in 2011.
This has more to do with refinancing debt and pushing it out 4 years – than it does with getting a lower coupon. IMHO, I don’t know if a lower coupon will be available to them. This has more to do with freeing up $275MM worth of negative cash draw that XM would have had to have paid out over the next 12 months (with an additional $75MM due 12 months later).
It’s all about cashflow…
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Yes, it is a good sign. Someone actually WANTS SiriusXM debt, and presumably below 15%. And they extend the due date, and already paid $25 million of it, and get to keep 25 million as well. Great deal, just wish we knew the details of the notes. If they can get FCF this year, then I dont see a problem retiring the 2014 bonds next. Those are killing them. After that, its time to get the price up, $2 would be great, and sell the shares they issued, and pay off over 1.5 billion of the remaining debt. This gives them a real viable profitable company, that no one is constantly shorting anymore. R/S and remove any doubt. Malone owns a high stock price, and a cash machine. Good times ahead. Good times.