Sirius XM’s Successful Note Buy-Back Leads to Balance Sheet Improvements and Possibly More
A few weeks ago Sirius XM announced a tender offer for their 3.25% notes due October 2011. The initial offering was not quite sweet enough, so they upped the ante and the results were a successful transaction that saw the company buy back 75.6% of the notes on the market. This leaves about $21 million worth of these bonds in the hands of bond-holders.
This buyback program will save the company about $600,000 in expenses related to the bonds. While any savings is good, it was not the reasoning behind the move. By buying back these bonds the company has successfully gotten some big benefits:
- Eliminated about $74 million from their debt picture, which is a liability on the balance sheet. This actions remove that liability which in turn improves their debt ratios.
- With improving ratios, the company stands a better chance of an improved bond rating.
- With a better bond rating and better debt ratio the company gains leverage in their ability to borrow if needed.
Overall these moves point to the fact that Sirius XM management is committed to making improvements across the board and has their finger on the pulse of the company financials. Costs associated with they buyback and the improved financial statements will be in the Q2 reporting, but the other benefits of the buyback can happen any time.
Position – Long Sirius XM Radio
giddy up!!!
Why is their 21M still in the hands of bond holders ?
because they don’t want to effect earnings per share in Q3 results.
Because those holders did not want to take the buyout
so Sirius will have to pay interest on these until maturity and then pay off in October ?
Bottom line, overall it saves money and continues to position the company to receive credit upgrades…
yeah that too!!!
Right on point Spencer. Mel continues to do just what he said he would do and that is work toward improving the balance sheet that will improve credit ratings. Once SXM reaches an “investment grade” rating, the company will be in a position to significantly control costs through significantly lower rates. Obtaining this rating will be the real game changer that will propel the PPS far higher then current levels.
Any guesses on net subs for 1stQ? Concern that no pre-announcement on sub gains?
Paying of their debt is a win win for the company. Keep in mind interest rates are at an all time low and to suggest that they will stay low long term is most likely not rational thinking. So as they move forward it is important to clear as much debt as possible. Not only do you not have to service the debt (paying the interest due) but you don’t have to worry about what interest rates will be if the bond reaches maturity and you still need to raise money at possibly twice the current rate. It’s the same logic that has so many concerned about our national debt. As we raise the debt ceiling we have to pay more interest on more money that we borrow. The scary part of this is what will the interest rate be down the road. For those old enough to remember the mid 70’s and early 80’s rates were up in the teens! The compounding problem w/ debt is the more you have relatively speaking the higher you’re interest rate will be due to being considered a higher risk to the lenders.