Thats a great point. It would make sense that the main reason for the 2 part deal is to allow them time to get everything situated before the 2nd and more detrimental part of the deal goes into play.
Thanks for the insight.
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Thats a great point. It would make sense that the main reason for the 2 part deal is to allow them time to get everything situated before the 2nd and more detrimental part of the deal goes into play.
Thanks for the insight.
It's only my interpritation but it wouldn't make sense to split up the loan by only a couple months if that (referring to my previous post) wasn't the plan. If you were intending on taking the deal as is (parts 1+2) you would announce it as 1 deal, no parts. Doesn't matter if Liberty didn't pay all up front. The stock isn't doing as well as people hoped because it is two parts, there is uncertainty. Had the exact same loan come out and it was 1 part the stock would prob fair a little better because it is absolute. I still wouldnt expect to see anything more than .20 (steady) for the time being.
I expect Mel to already be fairly close to something else but he will prob not talk about it on Monday except for "if other proposals arrive to us we have the option to take them." He clearly can't say "we are actively looking for new terms."
If Monday comes and the 4Q is good and the projections for Q1 are steady or close to proj. I expect good things from refinancing. If, however, the 4Q isnt sharp and 1Q isnt looking good either then Mel gets Malone's second part of the deal, no refinancing, Sirius continues to hurt on the common, a RS is issued, dilution occurs (IF MALONE CONVERTS THE PREF STOCK), and the longs become a few years longer. But the main point, if bad 4Q, is BK is not going to happen!
This guy takes a very bearish view of this deal.....and is still calling for bankruptcy.
http://news.briefing.com/GeneralCont...headOfTheCurve
How to Buy Satellites Cheaply -- As Shown by Liberty Media
by Robert V. Green
Last Update: 19-Feb-09 14:33 ET
How do you buy a $5 billion satellite system for $0.10 on the dollar? John Malone of Liberty Media just provided a textbook lesson.
Liberty Media's Investment: The Lifeline?
The Liberty Media investment in Sirius XM Satellite Radio (SIRI) is being viewed as a "lifeline" that saves the company from having to file bankruptcy.
However, a closer look at the deal suggests an entirely different strategy. In effect, what Liberty Media has done (through its subsidiary Liberty Radio) is jump to the head of the line of claimants for an eventual bankruptcy filing.
There is simply not enough capital in this deal to keep Sirius XM Satellite alive long enough to reach a financially stable situation.
Why then, would Liberty Media invest $530 million in a sinking ship?
The answer to that question is simple: the investment is not designed to save the ship. Instead, it is designed to place Liberty Media in a superior position over all other claimants with Sirius eventually does file for bankruptcy.
This strategy can be seen by examining the details of the Liberty Media deal.
Details of the Deal
The essential details of the Liberty Media investment are as follows:
$280 million in the form of loans and preferred stock to Sirius
$150 million credit agreement with XM Holdings, a Sirius subsidiary
$100 million purchase by Liberty Media of certain outstanding XM Holdings debt
This totals $530 million, which is the amount widely publicized.
The Sirius Credit Agreement
The details of the $280 million credit agreement with Sirius include the following terms:
Maturation date of Dec. 20, 2012
Secured by "substantially all" of Sirius' assets
Interest rate of 15% annually
Repayment begins on March 31, 2010
Quarterly amortization at 0.25% of principal and accrued interest beginning on March 31, 2010 and continuing until Dec. 31, 2011
Beginning March 31, 2012 the quarterly payments require 25% repayment of the outstanding principal balance (whatever that amount is as of Jan. 1, 2012)
The loan carries a $30 million structuring fee paid to liberty media upon closing.
These are extreme terms. They are much worse than any of the subprime mortgage loans that are now viewed as the cause of our financial crisis.
In short, the Sirius credit agreement amounts to a three year (actually only 33 months) loan with 15% interest, no payments for the first year, almost interest only payments for two years, with a structured balloon payment in the final year.
On top of this, the loan carries a "structuring fee" of almost 11 points. This means that Sirius owes $280 million, but only received $250 million at the closing.
The extreme nature of this loan demonstrates how little negotiating power Sirius had.
The bulk of the remaining $250 million was immediately used to redeem $172 million of debt that matured on Feb. 17, 2009, leaving just $78 million for working capital purposes.
The Preferred Stock Position
As if these terms were not enough, Sirius also will issue 12.5 million shares of convertible preferred stock, which is convertible into a 40% common stock position (post-conversion).
However, it is unlikely that Liberty Media will ever convert the preferred stock shares, as we will explain below.
The XM Credit Agreement
The $150 million XM Credit Agreement is equally extreme in its terms, which are summarized below:
Maturation date of May 1, 2011
Secured by "substantially all" of XM's assets
Interest rate of 15% annually
Annualized 2% fee payable on any unused portion of the loan
Available in two drawings
Details of amortization and principal repayment for this term loan were not provided, leading us to assume that interim interest payments are optional and simply accrue until the maturation date.
In the larger picture, such details are not significant, however. XM Satellite Radio will have difficulty repaying this loan on May 1, 2011.
In addition, Liberty agreed to purchase $100 million of outstanding debt of XM Satellite Radio.
Additional Concessions
Liberty also obtained substantial control of the future of the company. While obtaining just two seats on the board of directors, as lenders, Liberty also was granted approval power over any of the following:
Issuance of new equity
Merger or sale of assets
Acquisition or dispositions of assets above certain thresholds
Incurrence of new significant debt
Engaging in any new line of business
Altering corporate by-laws to change rights of preferred stock
In short, while Liberty did not obtain a voting majority on the board, these privileges give them virtual control over the future of the company.
In fact, these powers give Liberty the ability to veto any new investment in the future that might actually save the company from bankruptcy, but put Liberty in a subordinate position.
When all the pieces are put together, there is only one clear conclusion: Liberty will allow Sirius to file for bankruptcy, if and when the time comes.
On the other hand, if Sirius is able to pull itself out its deep financial problems and continue without the need for new capital (extremely remote possibility, in our opinion), then Liberty will have made an extremely profitable return on its investment.
In short, Liberty has put itself in a win-win situation.
The Bankruptcy Position
Why does it appear that Liberty's strategy is to allow Sirius to eventually file for bankruptcy?
The debt position of Sirius XM Radio is so substantial that the Liberty investment does not represent any possibility of "rescue" from the company's debt.
However, both credit agreements are secured by "substantially all" of Sirius XM Radio's debt and its subsidiary XM Satellite Radio.
Failure to pay back the Liberty loans means that Liberty can take claim of the assets that are key to the company's business.
This makes Liberty a "secured lender," which is a substantially higher position of claim in a bankruptcy filing than bondholders.
This means Liberty's claims and desires will have more impact in a reorganization than bondholders, despite the fact that the bondholders have much larger financial claims.
In addition, the substantial preferred stock position places Liberty ahead of the claims of the entire common stock class. Since the preferred stock would also represent 40% of the claim of the common stock, if converted, Liberty has captured the "voice of the stockholders" for itself.
Since unpaid dividends on the preferred stock accrue, but can be converted into common stock as well, Liberty's position might even represent a majority of common stock holders.
But Liberty will never convert its preferred to common. It does not have to retain control over common stock claims in bankruptcy. The liquidation preference preferred has over common stock gives it complete control of the future of existing common stock holders.
The most significant clue, however, to Liberty's strategy is this: all of the Liberty loans come due before any of the significant remaining bondholders.
That means that Liberty will able to demand a bankruptcy filing as a secured lender when both of the loans mature, but are unpaid.
Conclusion
Anyone viewing the Liberty Media (through the entity Liberty Radio) investment in Sirius XM Radio as a "rescue" is missing the bigger picture.
What Liberty has done, cleverly, is "jump ahead in line" of other lenders and stakeholders for the eventually bankruptcy filing, which is now probably 18 months to two years away.
They have also, as a secured lender, placed themselves above Howard Stern's possible claim as an unpaid vendor.
The secured lender position gives Liberty superior rights over bondholders.
The preferred stock position gives Liberty superior rights over stockholders.
Finally, the veto power gives Liberty superior rights over the board for decisions involving any possible new "white knight" who comes along.
When all of these pieces are put together, it is clear that Liberty stands to benefit greatly from an eventual Sirius XM Radio bankruptcy, which is still almost certain, but now postponed for at least a year.
When Sirius XM Radio does eventually file for bankruptcy, however, John Malone will be in the position of dictating the future of the company and its substantial assets.
And he has gotten control of the almost $5 billion of hard assets (including value of FCC licenses) for just $530 million, or about $0.10 on the dollar.
Sirius shareholders may come to be unhappy with how CEO Mel Karmazin agreed to this deal, but Liberty Media shareholders are likely to love how John Malone did.
Comments may be e-mailed to the author, Robert V. Green, at rvgreen@briefing.com
Well, that was a nice cheery article for us SIRI shareholders to read....:(
Ughhhh...
Although, a lot can happen in a year. Mel must have a few tricks up his sleeve. Maybe the 4th Q numbers are going to be a big positive surprise.
Green is an idiot. Always has been, always will be. This is not the first of such articles he has written about DARS -- he's been doing pieces just like this for the last 5 years.
Much of his interpretation of how the debt is set up is true -- but he once again assumes moronic conclusions.... worst case scenarios, with the worst assumptions. He's just a puppet for Cramer and always has been.
Did Liberty put themselves into this position with these issues? Yep. Won't argue there. But what Green ignores is that almost ALL of XM's debt is already senior secured... why do you think there's an option for Liberty to purchase $100MM of that XM debt? So that Liberty can get in line with that subsidiary too... this is just Sirius' first time issuing secured debt... both facts I've noted several times in the past. I also noted on the boards 2 days ago that this put Liberty at the front of the line - and that his shares would probably not be converted, because they are senior to the common. But did Green note that GM also has preferred shares??? Nope.
But what really gets me? Where he just assumes that XM won't be able to payoff or refinance the $150MM in 2011. Why would Green make that assumption? How does he know what the cashflow will be like for these companies in 2 years? Does Green also know that the 10% Converts due in mid Dec (not the Ergen converts, but the ones held by Honda)... does that idiot know that the SAME convenants on dilution and debt issues are also in the bonds held by Honda? Obviously not... the idiot specializes in doing a cursory read of ONE filing, deciphers it and then draws numerous conclusions without considering and looking at the big picture.
Honda via their converts and former Series C shares they held in XM, had the same control over the company. It was there to protect their investment from management doing something they didn't agree with -- it wasn't there to prevent them from doing business -- business like refinancing maturing bonds - it was there to prevent them from doing something stupid. Does Green really believe that if XM can't repay the $150MM in cash, that Liberty will prevent them from refinancing them upon maturity and would rather force bankruptcy? If in a year or so, the economy and bond market rebound - and Sirius XM is stronger with good cashflow -- and they have the opportunity to refinace with a lower coupon and want to use the funds to buyback the Liberty notes at 105%, does Green really think that they'll say "no" by enforcing the restrictive covenant about debt issuance?
Worst case scenario, that's what this guy does... IMHO, the time to bankrupt Sirius XM was this year -- not 2 years from now when the company will likely have strong cashflow and nearly in the black. His whole assertion of bankrupting in 2 years is laughable. It's a protection for Liberty's investment -- yes... but it's not to force the company into bankruptcy in 2 years, rather than allowing them to refinance maturing debt. What is with the fascination over and assumption that all debt MUST be repaid and not refinanced when it matures anyhow? I never got that...
And yes, I have tangled with him before -- correcting MANY mistakes and bad assumptions he's made in his articles over the years... he never responds.
----------
I totally agree...This is the part that had me fuming while reading that article. He has no idea what the cashflow will be like...He has no idea what will be going on in Detroit in 2 years.....Between the bailout and some American cars that are getting quite a bit of hype (The Chevy Volt, The Ford Mondeo etc)...maybe the car market can turn around at least a bit which would help SIRI's bottom line. I HATE when these guys throw out the BK word like it's a foregone conclusion. That is just bad reporting if you aske me.Quote:
Originally Posted by homer985
Exactly xitvp... the guy is ALREADY predicting bankruptcy -- 2 years out! It was one thing to do it 6 months out, after the closing of the merger and the economy on the bubble. But to do it 2 years out??? What a moron.
Doesn't Liberty only get veto power if Sirius defaults on a payment?
Wouldn't Malone want to do whatever he could to help the company and get the share price up so his stake in the company would be worth as much as possible?
http://www.bloggingstocks.com/2009/0...ves-it-an-out/
Sirius XM's deal with Liberty Media gives it an "out"
Posted Feb 20th 2009 12:30PM by Brian White
Filed under: Deals, Sirius Satellite Radio (SIRI)
With Sirius XM Radio, Inc. (NASDAQ: SIRI) shares hovering around 13 cents mid-morning, the pioneering and sole satellite radio company is probably savoring its investment this week by John Malone's Liberty Media Corp. (NYSE: LINTA).
Instead of filing for bankruptcy protection or possibly folding altogether, the satellite radio company stands to gain a $530 million investment from Liberty while giving away a 40% stake in itself. For some reason, Liberty loves satellite. It already owns the majority of DirecTV. Now it wants a good chunk of Sirius XM Radio.
The 8K report filed by Sirius XM Radio this week breaks the deal down like this: Sirius XM Radio receives an instant $250 million term loan (at a whopping 15% no less) in addition to $30 million of purchase money loans between the two companies. The $250 disbursement was funded this past Wednesday. But wait, there is more.
XM Radio is actually a subsidiary of parent Sirius Radio, and the second part of the deal gives the XM contingent another $150 million term loan at 15% annually, with full maturity occurring on May 1, 2011. This loan has not closed, and the provisions give Sirius XM Radio a lease on life in which to find more money outside of Liberty Media (good luck with that, board). If Sirius finds another buyer before the XM loan closes, it may have an out from Liberty. Are credit markets going to come around by mid-year to allow this to happen? Or, will some hard cash show up instead from another party? For now, Sirius XM has found a way to escape eviction, but the landlord will come knocking again.
My read is that this is only if Sirius cancels the Investment Agreement before Dec 31, 2009. My interpretation is that they can cancel the Investment Agreement without penalty to the Sirius Credit Agreement after 2009. Is that correct?Quote:
Originally Posted by Newman
Quote:
Originally Posted by 8-K;
This article belongs in this thread....
Quote:
Originally Posted by JohnnyIrishXM
So SIRI and Liberty both have a right to walk away.....with certain conditions.
http://www.radioworld.com/article/74738
Liberty Bails Out Sirius XM
02.20.2009
Sirius XM has a temporary reprieve from bankruptcy thanks to a $530 million loan from Liberty Media, which now gets a 40% equity stake in the satellite radio company and becomes its single largest shareholder.
The deal from the company that owns DirecTV and the Discovery channel pays some of Sirius XM's debts and may have saved the job of CEO Mel Karmazin, according to some analysts, who said creditors had warned that if the satcaster filed for Chapter 11 bankruptcy, they likely would have ousted Karmazin.
The loan comes with a high interest rate: 15%. Liberty Chairman John Malone and CEO Greg Maffei will take seats on the Sirius board. Liberty may get a third seat as well out of 12.
Liberty gave Sirius $250 million immediately, allowing the satcaster to pay off $175 million in debt that was due Tuesday to Dish Network Chairman Charlie Ergen; he also had sought a stake in Sirius and had been negotiating with the satcaster until a week ago.
While Ergen planned on using the wireless spectrum assets of Sirius to roll out new services like mobile TV, Maffei played down any benefits from combining radio and TV, telling the Wall Street Journal, "There are few operating synergies."
Sirius hasn't commented on why it decided the Liberty deal was better than Ergen's.
Sirius XM is not out of the woods; it still faces another $350 million debt payment in May and $400 million debt payment in December. Sirius could use the extra money from Liberty to help make the May payment and use it own cash flow for the remainder.
However, Sirius and Liberty said the loan is structured in two phases, with Liberty's obligation to provide the second loan subject to "certain closing conditions." Those give Liberty the right to walk away before the second payment should Sirius' financial conditions worsen, according to analysts.
"Sirius XM is not out of the woods; it still faces another $350 million debt payment in May and $400 million debt payment in December. Sirius could use the extra money from Liberty to help make the May payment and use it own cash flow for the remainder."
Sirius does not owe $400 million in Dec. It is, I believe, $224. Why can't these retard writers ever get anything right? This is a perfect example why you cannot believe everything you read.
You are correct SiriusXMInvestor. The Dec. debt amount cited is incorrect - it is actually $260.7 million (with the Honda debt due 12/31 included). $172.5 million of the 400 million due 12/1 was extended out to 2011 about a week ago. The article fails to mention that after the cash infusion from Malone, the amount remaining that SIRI actually has to come up with is pretty small - nor does it mention that the May bank debt could likely be extended...Quote:
Originally Posted by SiriusXMInvestor
Here is a breakdown of the remaining '09 debt, which is mostly XM's.....
SIRIUS '09 DEBT
8 3/4% Convertible Subordinated Notes due 9/29/2009 ($1.74 million outstanding)
SIRI.GA / CUSIP: 125127AJ9
http://cxa.marketwatch.com/finra/Bon...D=MTI1MTI3QUo5
XM '09 Debt
Senior Secured Term Loan due 5/5/2009 ($100 million outstanding)
...BANK LOAN...
Senior Secured Revolving Credit Facility due 5/5/2009 ($250 million outstanding)
...BANK LOAN...
10% Convertible Senior Notes due 12/1/2009 ($227.5 million outstanding)
XMRD.GI / CUSIP: 983759AC5
http://cxa.marketwatch.com/finra/Bon...D=OTgzNzU5QUM1
10% Senior Secured Discount Convertible Notes due 12/31/2009 ($33.2 million outstanding)
...PRIVATELY HELD BY HONDA MOTORS OF AMERICA...
TOTAL: $612.44 million remaining '09 debt due
Basically, if Sirius can come up with a superior agreement for the 600M by April 15th, then they get out of Liberty deal. If they can only get a 250M loan, then Liberty will take care if the rest and take their 40% share and seats on the BOD.Quote:
Originally Posted by Demian
I like our chances.
This from the 8K......
http://investor.sirius.com/sec.cfm
This from the PR.....Quote:
The closing and funding of the XM Credit Agreement is subject to several conditions, including: (i) XM’s existing credit agreements being amended to extend the maturity of the loans to a date and on terms reasonably satisfactory to Liberty Media Corporation, (ii) Liberty Media Corporation purchasing assignments of loans outstanding under such existing credit facilities in an aggregate principal amount of up to $100 million
http://investor.sirius.com/releasede...leaseID=365423
Quote:
The second phase provides an additional loan of $150 million to XM
Satellite Radio, SIRIUS XM's wholly owned subsidiary. Liberty has
also agreed to offer to purchase up to $100 million of the loans
outstanding under XM Satellite Radio's existing credit facilities
from the lenders.
So let me get this straight...
Phase 2 of the deal with Liberty gives 40% of the company away for a $150 million dollar loan @ 15% interest and Liberty agreeing "to offer to purchase up to $100 million of the loans outstanding under XM Satellite Radio's existing credit facilities from the lenders."
"Up to $100 million"? So it could be less, but not more? SIRI still has to pay Liberty back for the "up to $100 million" of debt that they buy?
Is 40% of the company really only worth a $150 million loan @ 15% interest?
Mel has got to be shopping around for a better deal than this....
you know he is.Quote:
Originally Posted by Demian
he didn't file for bankruptcy and neither did he sell the whole company for cheap. 40% may be given away on the cheap, but even that's not a done deal yet. i've said it before and i'll say it again, if anybody else was running this company i think we would have went bankrupt last week. this guy is pulling thru in the worst economic period decades. many companies that were profitable for years went bankrupt, and we haven't even made a profit and we're still here. this is a real challenge for karmazin, nobody thought the merger would go thru and he did it...
i think it is only debt if malone does not get a stake in the company, if he gets a stake in the company he's paying himself back?
as well as mel see's the benefits of having a company like liberty media on their team, they are banking it right now off dtv i guarantee it, when i was in philly this summer working in some of the run down neiborhood's i would see miles and miles of dtv dish's. It's so damn cheap compared to regular digital cable, the harder times get the more people will switch so they can have cable but not have to pay an arm and a leg for it. I think we are getting more then just a 500 million dollar loan, we are getting the financial backing of a juggernaut who is actually inreasing there income in one of the worse financial times in recent history.