XM Announces BuyBack On 9.75% Senior Notes

10 Responses to “XM Announces BuyBack On 9.75% Senior Notes”

• July 29th, 2008 at 11:39 pm Len Says:

  Can you post this on Seeking Alpha?
  Thanks
  Len

• July 30th, 2008 at 9:06 am homer985 Says:

  Here’s my explanation from Yahoo last night… it pretty much covers everything.

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  http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_S/threadview?m=tm&bn=22318&tid=3655700&mid=3656790&tof=-1&rt=1&frt=2&off=1

  I will try and explain everything one final time as best I can…

  XM had about $1.5 billion in puttable debt — which means, if XM changes control, the debt holder could force the company to buy back the debt. So XM had to refinance almost all of their debt…

  Incedentally, Karmazin had nothing to do with the refinancing, as the companies had to sign confidentiality agreements to keep each others “business” and “finances” away from each other until after the merger is consumated. So while Mel was probably aware of what XM was doing — he was not the facilitator, as that would be against the law.

  First, XM offered an increase in the interest coupon on their $400 million in 1.75% convertible notes that mature in December 2009 — up to 10%. Those holders agreed, so XM changed the indenture on these notes.

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  Second, XM offered to repurchase $400 million of their $600 million in 9.75% Senior Notes with cash… and issue a “new” exchange note for the final $200 million, which would have an identical coupon of 9.75%.

  To come up with the $400 million in cash, XM did a new debt offering. There was one stipulation — and that was, if this new note offering exceeded the $400 million, then every dollar higher had to be used to repurchase the remaining 9.75% notes. We since learned that this debt offering went really well — and was “oversold” all the way up to $700 million. So XM had to use $600 million of it to buy back all of the $600 million in 9.75% Senior Notes. The problem here was that the coupon on these was run up to 13%… ouch. But these are tough times… so instead of $600 million at 9.75%, they now have $700 million at 13%.

  There was no interest rate at 15% or 16%. That was a misunderstanding by many who mistook the discussion of the Yield to Mature, as the interest rate. The YTM will almost always be higher than the interest rate. In fact, the new Senior notes above have a coupon of 13% and a YTM of 16%.

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  Third, XM put together their final piece of refinancing — by issuing $550 million worth of new exchangeable notes (aka, convertible notes). Problem here, is that most buyers of convertible notes are Hedge Funds — who short the common stock agains the purchase of the convertible debt, in an arbitrage investment play… but Sirius is on the REG SHO list and has no shares available to short. So XM got Sirius involved, to “lend out” up to $440 million worth of their shares to the Hedge Funds, so that they can short the common against their Debt purchase. Without Sirius lending out these shares, the interest in buying this debt would drop greatly — and cause XM to lower the conversion price and increase the interest rate offer on them.

  So today we learn that they priced the conversion price of the convertible debt at $1.875/share; and priced the offering price of the loaned out shares to be sold at $1.50. This combination allowed XM to get an interest rate of 7% on this new $550 million in debt.

  This $550 million will be combined with the remaining $100 million from the other debt placement — and used to buy back the $200 million in Floating Rate debt; and $310 million that is owed on the Transponders of XM-4, which were sold last year in the leaseback agreement.

  This leaves XM with $140 million remaining — which I believe XM is using to replenish the $120 million in cash that XM used to deposit in their MLB escrow account.

  All money raised in these two offerings has now been used to refinance/buy back older debt.

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• July 30th, 2008 at 11:47 am john Says:

  Well when you put it that way, it is simple homer, LOL, Thanks man.

• July 30th, 2008 at 12:55 pm SiriusIntentions Says:

  Homer,

  Do you have an opinion on what will happen with the Sirius and/or former XM 2009 convertible debt? Will any part of it get bought back or do you think it will all be refinanced at similar rates to the new financings if the credit market does not improve?

• July 31st, 2008 at 12:47 pm Newman Says:

  SiriusIntentions:

  I am afraid that in the near term, Sirius XM Radio will not be able to buy back any outstanding debt. This is one of the biggest problems that I have had with this refinancing stuff, is that when they did it, they did not push back the maturity date at all. Where in the world are they going to come up with an additional 400 million (plus 10% interest) by December of 09, when they have to worry about the cost of paying for and launching a satellite? The new debt offering should have held shares a bit closer to where they where when it was offered, which was around the $1.875 mark, and raised another 400 million at a low interest rate to pay off this 2009 debt. THAT debt is the one that scares me.

• July 31st, 2008 at 6:42 pm SiriusIntentions Says:

  Newman, it’s possible that Mel attempts to pay off at least 200 million partially with a credit facility or otherwise considering he thinks they will be cash flow positive.

  I realize that most will be refinanced.

• July 31st, 2008 at 8:39 pm homer985 Says:

  Newman, it’s worse than that…

  Sirius has a $300 million convertible that is underwater maturing in March of 2009; to go along with this $400 million in December of 2009. That is $700 million that must be refinanced in the coming 16 months.

  Why? IMHO, I believe that it is because they want to get a couple quarters under their belt to demonstrate some synergies with actual results — not with forecasts. Combine that with hopefully a bit of a turnaround in the debt markets in the next 6 months — then they can refinance all of it at one time.

  Recall that the XM debt had a convertible price of $50 (adjusted down to $10.86 after the merger)… I can see a new $700 million convertible being used with an obviously lower conversion price — and a coupon in the 4%-5% range… but only if they demonstrate synergistic improvements first.

  BTW, you said “plus 10% interest” in your post… interest is paid semi-annually. Not when it matures.

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• August 1st, 2008 at 6:03 pm SiriusIntentions Says:

  Homer, if they improve enough to see cash flow positive the next year you don’t think Mel will use cash on hand to buy back some debt?

• August 2nd, 2008 at 9:42 am SiriusXm: Show Me, Don’t Tell Me - SiriusBuzz Says:

  [...] Recently, xm announced a buyback of some of its outstanding notes, and the street had no reaction. In my opinion , a common stock share buyback program is imperative at this point. If there are in fact 400 million dollars in synergies going forward, how about putting 100 - 200 million of that up to prove it. Let’s face it, if the company believes that the stock is undervalued, would it not make sense to buy the stock for the company treasury at this low price? After all they just lent out hundreds of millions of shares for UBS and Morgan Stanley to short against. It would also be nice to see some insiders like Mel and other board members put up a few more dollars of their own money to raise investor confidence. I believe the company MUST do this, and do it soon to salvage what is left of stock price and raise confidence that a bottom has in fact been made. Post CommentSphere It addthis_pub = ‘chaz7979′; addthis_brand = ‘SiriusBuzz’; Add This Posted in Investor News When will the FCC do the right thing and follow along with the DOJ decision? ( surveys) [...]

• August 2nd, 2008 at 1:45 pm homer985 Says:

  SiriusIntentions

  They’re not going to have positive FCF next year… read the statement again, it is BEFORE CapEx spending. Which will be at least $200 million next year, IMHO.

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