Standard & Poor’s Ratings Services said today that its rating and outlook on SiriusXM Radio Inc. (BB/Stable/–) is not currently affected by the announcement that the company’s CEO Mel Karmazin will depart on Feb. 1, 2013. The announcement from the ratings agency seems to mirror market sentiment as while there was a bit of a roller coaster ride in the last 24 hours the equity essentially closed today within a couple of cents of yesterdays close.
S&P stated that they do believe that the company will take on more debt, but essentially the rating is in tact even at debt levels of 4.5x EBITDA. Currently SiriusXM is at about 2.5x. The neutral position seemed even more pronounced as S&P stated that until there is more certainty surrounding Liberty Media, upgrades are not in the cards either. No downgrade and No upgrade essentially spells out the position.
While some investors fear added debt, it is actually well within the ability of the company to handle it. The biggest issue is what to do with the cash made available by taking on more debt. Most analysts feel, and I agree that a share buyback is the most plausible route. However, a dividend can not be ruled out. The Liberty uncertainty is essentially an answer we all want to see more clarity on.