UBS analyst Lucas Binder of UBS published a note today related to Sirius' announcement of a $250,000,000 term loan from Morgan Stanley. Take a look at Binder's report after the jump...
SIRI Raises $250M; Cushion on Fully Funded Status
SIRI announced it has raised $250M in a Sr. Sec term loanSIRI announced it has obtained a $250M senior secured term loan commitment. The facility will mature in five and a half years. The proceeds will be used for general corporate purposes. According to SIRI, the transaction takes advantage of favorable market conditions and significantly strengthens its balance sheet.
Additional debt provides cushion to fully funded balance sheetOur model had assumed SIRI did not need additional funding throughout our projections. As a result, including the announced term loan, we believe SIRI has substantial financial cushion as its moves closer to FCF breakeven, which we expect in 2009 on a sustainable basis. We assume the term loan will have favorable rates relative to SIRI’s 9 5/8 Sr. notes, since it is senior in the capital structure.
Improving outlook for subscriber growth toward YE07 supports Buy
We believe SIRI’s improving outlook for subscriber growth associated with OEM penetration and dominance in retail should be demonstrated toward the end of 2007. In addition, the improving outlook would support our FCF estimates in 2009 and beyond. We believe SIRI is the satellite radio provider with better execution and will maintain its subscriber growth lead over XMSR through 2008.
Valuation: Maintain Buy 2 and $3.70 price target
We base our price target on a detailed DCF analysis. We use a 3% growth in perpetuity and a 13% WACC. We have revised our EPS estimates.
Tyler Savery Position - Long Sirius, Long XM