In an 8k filed today after the close, it was officially announced that XM Satellite Radio has merged into Sirius XM Satellite Radio effective January 12, 2011. The move, which was not unanticipated, is a natural byproduct of the merger between Sirius and XM years ago as well as the more recent merger of XM Satellite Radio Holdings into XM Satellite Radio in 2010.
Essentially Sirius XM Satellite Radio has taken responsibility for all XM Satellite Radio debt, and the company will now be able to report all activity under the Sirius XM name rather than multiple filings. This move simplifies things for Sirius XM and should provide more clarity in the future as investors research the company.
The XM Debt that Sirius XM is now responsible for includes the 11.25% Senior Notes due 2013, the 13% Senior Notes due 2013, the 7% Exchangeable Senior Subordinated Notes due 2014, the 7.625% Senior Notes due 2018, and the 9.75% Senior Secured Notes due 2015 (which were already part of Sirius XM debt – Thanks Homer).
The 7% exchangeable notes due 2014 have been a hot topic of late that I have received several inquiries about. They carry a convert price of about $1.87 and because Sirius XM seems to be approaching that strike price some people feel that they might be exchanged. While a small percentage of the note holders may exchange, the more likely scenario is that these holders will continue to hold and collect their 7%, converting later on if the stock price warrants it.
Holding the debt is the move that carries the least risk, and why would a note holder give up a guaranteed 7% when they can collect those monies, and still convert to stock three years from now no matter what the price of the stock. Simply stated, if the stock were trading at $3.00 three years from now those holders would have collected 7% for three years and then get a $3.00 stock at the discount price of $1.87.
The essence of today’s 8k is simply cleaning up of the company on paper and simplifying things going forward. The debt picture remains the same as does everything else.
Position – Long Sirius XM Satellite Radio