It is not the February debt that made the news today, but rather some of the XM debt from December of this year. SIRIUS XM Radio announced that XM Satellite Radio Holdings Inc., its wholly-owned subsidiary, had exchanged approximately $172.5 million aggregate principal amount of its outstanding 10% Convertible Senior Notes due December 2009 for a like principal amount of its newly issued Senior Secured Notes due 2011. An aggregate of $400 million in principal amount of the 10% Convertible Senior Notes due December 2009 was outstanding prior to this transaction.
In simple terms:
- There was $400 million in debt that was due in December of this year.
- The company exchanged $172.5 million of the debt thereby extending the due date until 2011.
- The new notes also went from senior convertible to senior secured (gives the holder more security).
- $227.5 million worth of the original $400 million remains as it was prior to the transaction.
- Unless or until registered, the notes or shares can not be sold. The party that worked the deal with Sirius XM has not been identified.
- Charles Ergen was making efforts to obtain some of the December debt. Whether this move was with Ergen or not is not known. However, this move does take away leverage from the Ergen activities if it was not with Ergen as it extends the deadlines.
The company has not backed away from a possible bankruptcy, and speculation is that they could file as early as Tuesday, February 17th if they are unable to take care of their obligations on the February 2009 debt due the same day. The company needs a bit less than $180 million to take care of the February debt.
From an investors standpoint, the extension of some of the debt is good news. However, the immediate concern is the February debt, and as yet there is no resolution on this matter. This leaves investors in a bit of a dicey situation, and perhaps a long weekend of mulling over their investment strategies.
Meanwhile news continues about discussion with both Ergen as well as Liberty. Ergen wants control, and the Liberty plan would not involve control.
Some may assume that the February debt may be a done deal because the company is announcing restructuring of December debt. I would caution that this is not a foregone conclusion. Ergen was obtaining February debt for leverage. He gets no leverage by extending the February due date, and perhaps will not even sit at the table to discuss anything other than control. The February debt is still up in the air, and until something is announced on that specific issue, investors should be prepared for anything over the next few days.
Position: Long Sirius XM Radio