Could Investors actually save the company?

As everyone well knows, the debt issues of this company are far outweighing the positive news regarding the rapidly improving metrics. This has kept the investors of this company hurting from the precipitous decline in the stock price. There have been some people that have been badmouthed by Sirius Longs (myself included - as a basher I mean) that have actually had some fairly decent insights into the company. I decided I would bring them to this thread for discussion:

Jim Cramer: "The common stock is nothing but a lottery ticket. The people that control the bonds control this company. Buy the Bonds, not the common."

Micheal Hartlieb: "Allow investors to buy bonds in the company to help pay off debt, rewarding long term investors two-fold"

What if these were actually feasible ideas?

Here is my opinion: Sirius XM is on the verge of becoming a cash cow, but they must get past the 2009 debt before they can go any further. The problem with this is the US is in one of the worst economic recessions/depressions of all time. The outlook on the street is bleak, Moody just downgraded Sirius, and the stock is priced for Bankruptcy.

What if Sirius came out and offered shareholders on record (includng institutions) the opportunity to purchase debt bonds? Rather than regulating their bond sales through the banks as is traditionally done, bring it straight to the investors. The issuance of Senior Secured bonds (secured by all assets of the combined company) in increments of $1000 each with an interest rate of 12-15% (they are Ca class bonds afterall) paid biannually that mature in 2018/2019 (10 year bonds) but are callable at any time with no penalty to the company other than the payable interst upto the next payment date.

This is a win/win proposition:

The deal is available only to current investors, rewarding those holding the stocks with a bond with a good yield.
If successful, the deal will take care of short term debt needs, lifting the price per share, which also rewards current investors.
The company gets the financing it needs, with terms that are not horrible, and can be paid off as soon as the company starts making money without penalty to the company.

I would definately be incouraged to pick up some of these bonds with those kind of terms. Sure, the company would have to sell 100 million bonds at 1 grand each to raise 1 billion dollars, but I think there are enough institutions and private investors who can afford to pick up at least a couple of these puppies to make the efforts worth their while.

What do you all think?

Newman

This idea has been thrown around on other sites, but no one has explained it so easily as you have. It is a great idea. Why don't more companies use this type of financing. I know this is not your typical way to raise capital to pay off debt, but it sounds better than dilution or convertibles with outrageous terms.

As a little disclaimer, I am not a bond man and I dont know what all goes into these kind of things.

I am just as confused as you are: This sounds WAY too easy to not be done. I am thinking there may be something more behind it. I am hoping that Homer or Tyler will stop buy and comment for some clarity.

Wouldn't it be adding more risk to an already risky position ? Junk bonds are quite risky, even if they are "preferred bonds".

If Mel has to go begging for money. Why not beg to someone who actually cares about the success of the company! I know that another 2-3K for the eventual return of my original investment of 40K sound pretty good to me!

yes it would. But if you have the funds and are not afraid to put them up, and are able to live with the eventual outcome, it would be a small risk to take.

Siriusowner

thanks for bringing some rational thinking to this thread. many times, the posters can't seem to get out of their own way and subsequently cont to make irrational decisions(me included).

Siriusowner

Slap me around if i begin to fall into the forementioned category.

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Originally Posted by Siriusowner

Wouldn't it be adding more risk to an already risky position ? Junk bonds are quite risky, even if they are "preferred bonds".

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You are correct, they are quite risky. The fact that they are "secured" or "preferred" bonds make them less risky, but there is still a risk. Many would not be willing to take this risk. Many would, in my opinion. Would it be enough? Who knows. That is why the risk is partially offset by a high interest rate. Many of the current bonds are at 10 and 14%, so 12-15% may not be high enough, but if it was successful, I think Sirius XM would be in a very strong position going forward, leaving the stock (and bond) holders in a very good position.

This question was asked during the stockholders meeting. Mel seemed to brush it aside saying that it was too complicated to do.

As a current bondholder (Two 8/1/2013 @ 9.625%), I would be willing to buy additional bonds if they were actually through Sirius (or it's direct representative) to pay down existing debt. I would doubt they could be made Secured since that would put this ahead of other debt holders, some of who are on the board of directors. Issuing convertible Preferred Stock would also be a possibility.

Is it throwing good money after bad? Maybe. I am still buying shares at this price so I am willing to take that chance. I like the idea of Convertible Preferred Shares. If the price of the common stock rise because the debt issue is gone or reduced then the preferred shares will rise because they are convertible to a certain number of common shares. The share price of the convertible preferred stock could be a couple of dollars vs the usual $1000 denomination of bonds so that small shareholders and customers could purchase them them through their broker

Mel wants one outcome and one outcome only. That is to BK the company. I wish that all of you here wake-up to this fact. Mel is no different than Madoff.

This NYT article spells it out. It is over.

http://www.nytimes.com/2008/12/28/bu...ewanted=1&_r=1

Newman,
You currently have no position in SIRI. Would you invest in these bonds?
I for one, down almost 18k would not. I also don't think there are enough retail shareholders or institutions for that matter willing to invest in those bonds.
Chuck

Simply buy the Feb 09 bonds for 80 cents on the $1, 190% yield.
or buy the 8/2013 for 19 cents on the $1, yield 71%.

I am no expert on bonds but learning more then I ever thought I would (learned more about the fcc and mergers then I ever though or wanted to know too)

We need some list of "pecking" order these debt holders have IF a BK would happen, it would seem obvious to me the debt holders lower on the list (and attached to XM assets ONLY) would have the most incentive to make a deal. anything from a simple refi to giving some of the farm away i.e. conv bonds $500M selling for 80 cents on the $ 10-15% coupon (we only collect $400M but pay them $500M at maturity) with a nice $1 strike to convert to equity as a carrot for more upside for those investors. Ofcourse I am just throwing some #'s out there but something like this is a win/win for all involved.

SOMEOne MUST KNOW THE PECKING ORDER OF ALL THESE DEBT HOLDERS?

Siriousowner put you 1335552 IQ to work and research the "pecking" order of the debt holders and how much each of these holders have at risk.

stern has not disapeared, this is a completely stupid idea. Just check google trends, youll see every name mentioned on the show ends up in the top 10 if not number 1, thats says alot about his influence if u ask me. They think just because the fcc isnt suing him and the media isnt reporting on his outrageous stunts he has lost his influence. They still have the #1 radio show in america, theres no terrestrial or sattelite radio show that can compete. Im sick of the news about sirius being bad, the news should be about the credit market being bad, cause thats truely the problem, not sirius. Sirius investor i cant wait for guyys like you to eat your words. It will happen.

Per the SEC

How Are Assets Divided in Bankruptcy?

Secured Creditors - often a bank, is paid first.

Unsecured Creditors - such as banks, suppliers, and bondholders, have the next claim.

Stockholders - owners of the company, have the last claim on assets and may not receive anything if the Secured and Unsecured Creditors' claims are not fully repaid.


http://www.sec.gov/investor/pubs/bankrupt.htm


If there is a BK, the shareholders will likely get nothing. Bondholders should get something depending on how much secured debt there is. The only secured debt that I know of is a small amount to Honda.

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Originally Posted by LIBOR/TED SPREAD

Simply buy the Feb 09 bonds for 80 cents on the $1, 190% yield.
or buy the 8/2013 for 19 cents on the $1, yield 71%.

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That is why the convertibility, whether bonds or preferred shares, is so important. You can make you money via interest (dividend in the case of preferred shares) and catch any upside potential on the common shares.

James,

Thanks, great information!!! Just like most here SIRIXM is running thru my mins 24/7 OCD style!! I was thinking good/bad on Convertable bonds today and wanted to make sure my thinking is correct. Brandon wrote an article a few months back arguing no difference between $600M or $6B in convertables, it was qucckly explained to Brandon that the lower stock price would require a much larger position to short to hedge the same $ amount. What I think was missed here and what Brandon was trying to get his arms around was NEW investor trying to hedge vs EXISTING investor hedging.

GS has $143M in 2/09 $4.41 convertables and are fully hedged somewhere above $2 a share (or atleast above $1.5). If we pay those off in cash and do another convertable with another company YES GS will have to cover their short position which they have made a killing on (while they also have collected 2.5%m coupon) all this with NO RISK. BUT the new company issing a convertable will have to short possibly 10X the shares to hedge the same $143M. Would it not make sense for both GS & SIRIXM to simply change terms of FEB convert from 09 to 2011 and from $4.41 convert price to $.25 NO NEW SHORTING would happen as GS is ALREADY hedged on the $143M YES each penny the stock increases they will give back some of there gains on the short position but wont they be long 8:1 (8 long vs 1 short) when stock is above $.25 if the $143M was hedged at $2? 6:1 if hedged at $1.50?

AM I MISSING SOMETHING HERE? Am I completly wrong on how this works?

Is Sirius legally allowed to buy up the bonds on the open market?