The news of the Liberty bridge loan to Sirius XM radio has now been digested by the market. Not surprisingly, the mainstream media has managed to put a significant negative spin on the event. Already, talk of future bankruptcy has taken center stage and the stock has stalled.
It’s no wonder that SIRI investors are left confused and bewildered. All anyone wants is a straight answer yet the only clue given to investors has been an SEC filing which left armchair analysts like myself to figure out the meaning behind the deal. That filing did little to put investors at ease. In fact, it has made things worse as it smites current shareholders, and provides fuel for the naysayers to wreak havoc.
By now, everyone is aware that I am always willing to go out on the proverbial limb. I’ll begin with the issue of the media’s attempt at fear mongering utilizing the term bankruptcy. They are wrong. Investors in Sirius XM have become much more sophisticated in recent months. One important lesson has been that Sirius XM bonds dictate the price of the common stock. Several months ago, S&P and Moody’s both downgraded Sirius XM due in large part to its 2009 debt obligations, and the stock retreated to record lows.
The recent upgrades by Moody’s and S&P would dictate that bankruptcy at this point is in fact off the table. The media was quick to point out the downgrades, yet these same “news” agencies conveniently overlook the upgrades. If Liberty’s John Malone was seeking to get in front of other bondholders in the event of a future bankruptcy as some have suggested, the bonds would not have been upgraded.
No one has considered that the company is on the cusp of becoming free cash flow positive in 2009. That lower car sales in many cases benefits Sirius XM, and that the company has significantly reduced operating costs since the merger. If the company can achieve its 2009 goals, this bridge loan will in fact be beneficial to Sirius XM.
There are positives to look for going forward. One is NiceMac’s USirius StarPlayer application for the iPhone, which could be approved in the coming weeks. 2009 should bring with it news that Sirius XM has extended its service to Puerto Rico and worldwide on the Internet. Hopefully, Sirius XM is done with backroom deals and can now focus on growing its subscriber base.
Position: Long Sirius XM