Sirius Bonds Say Stock Has Upside
In these economic times, people look for any signal of stability. Sirius XM Radio (SIRI) has indicated that they are on the cusp of something good, but the street is still wanting more evidence that the equity has upside potential. Promises of better numbers tend to fall on deaf ears when filling up the car with gas presents challenges to the household budget that simply did not exist before.
Satellite radio investors have weathered the storm thus far, and seen the equity bounce back from a nickel to a share price 10 times that amount. Those that invested that low already have a healthy profit to protect. The question is where the upside potential for Sirius XM rests. One metric that has oft been overlooked is where the bonds for the company are trading.
One bellwether for Sirius share price is the 2013 9.625 coupon bonds. These bonds have existed for some time, and represent debt due in 2013. These very bonds traded as low as 20 cents on the dollar during the depths of the credit crisis and the potential for Sirius XM bankruptcy. Last week they traded as high as 90 – levels not seen since well before the merger. This represents near par, and is considered an indicator of the perception of Sirius XM’s ability to pay their debt.
Like it or not, there is a sentiment that bond traders are “smarter” than stock traders. The bond market is fueled by reading the real and demonstrated ability of a company, while the stock market tends to be more of a bet on potential. Bonds can be thought of as the more conservative investors exhibiting confidence in the company. So how does bond strength bode well for shareholders?
The last time these particular bonds traded at this level the stock was about $1.50. Now, to say that the stock should be there today would be a bit far fetched. We need to consider the fully diluted share count. The company now has double the shares, and thus, accounting for that dilution, it is arguable that the stock should be trading at a level between $0.70 and $0.75.
Some may argue that Malone is acting as a backstop for the company, and that this gives strength to the bonds. That is a sound argument, but I would counter that if Malone’s position in Sirius XM is strengthening the bonds, why should it not also strengthen the stock? If the belief is that Sirius XM’s debt picture is well under control, it should take some worry out of the stock. Between better cash flow, improving metrics, and the security brought by the Malone deal, there is little reason why the equity can not enjoy a bit of upside from current levels.
In fairness, there has been a lot on the downside for Sirius XM. Weak auto sales combined with subscriber losses, and GAAP losses that were higher than the street expected are all issues that can weigh on the stock. However, if the “smarter” bond players are seeing the potential in the company, the equity players can’t be far behind.
Simply stated, the bonds are trading near par, and that aspect of news has not yet been digested by the street.
Position – Long Sirius XM Radio
Tyler . . it would be very-very interesting to see a month-by-month graph plotting of the Bond Price and Equity Price for the past 14 months . . and then see what the correlation coefficient is . . . is something you can do??
I think this also shows that the “dilution” factor has long been priced-in . . even dating back to the 2008 shareholders meeting which approved the issuance . .
. . . pearson product-moment correlation coefficient that is . . .
Tyler,this is one of your best articles to date,and i agree whole heartedly that the bonds are the conservative investors bell weather for a company,along with profitability and uniqueness of market share..The street will catch on soon,if judging by todays action is any indicator,they haven’t already.
They snuck in some big blocks at the close as buyers,not sellers,and we headed up to .52 close..
Long and Siriusxm
What the bond guys may have noticed is that we are no longer in the worst recession since George Washington, and the upside is enormous. There are a lot of clunkers out there that need to be replaced. Not just cars, but washing machines, lawn mowers, highways, bridges and everything else that makes this country run. When all this pent-up demand takes flight, the market will scream and take SiriusXM with it.
I too am long SIRI, and everything else as well.
Isn’t it illegal, or a ‘SIRIUS’ conflict of interest for a firm the likes of GS to put out a downgrade, influence a ‘SIRIUS’ sell-off, and then as stated here in a quote from ‘seeking alpha’
Goldman Sachs (GS) which at one time had Sirius XM Radio on its conviction sell list before dropping coverage altogether. Shortly after that Goldman Sachs had quietly accumulated 9,511,936 shares and 298,020 call options of SIRI following its Feb. debt refinance. A year ago Goldman Sachs owned a mere 1 million shares and several option straddles, along with the bulk of Sirius XM’s February 09 debt. Goldman Sachs it seems has made a decision to go long Sirius XM Radio.
BUY UP A TON of Stock !!!
This is not fair to we ‘retail’ investors !!
This should be outlawed if not straight out FINED !!
This S..t Suks Big Time……………………
not defending GS, but something here is odd.
GS put SIRI on convicted sell list almost a year ago. Wienkes discontinued covererage in Decembember of 2008. During that time GS had a long position (in virtual disagreement with their analyst.
After the debt refinance, Goldman went long, but 9,000,000 shares is a drop in the bucket for them. The options 300k of options contracts put the company in control of another 30,000,000 shares.
In theory there is a “chinese wall”, but proving that that wall was broken is a big challenge.
Goldman, or anyone going long after the refinance is not rocket science.
Now, if someone were going to stand up and complain about GS, why are they not complaining about JP Morgan? JP Morgan does a ton of business with SIRI, yet comes out with reports.
My issue with people calling out “manipulation” only on the down side. If you are going to challenge the system, you need to do it on both sides of the coin.
I am not attacking you, but rather pointing out the injustice and imbalance that many have with regard to manipulation. Rarely do you see anyone complain about “manipulation” or “conflicts” if they are to the upside.
Well said!
or as Pat Cooper (aka Pasquale Caputo) once said/shouted on Stern:
“It’s a two-way street . . it’s a two-way street”
I once shared a drink with Pat Cooper; very nice man actually.
But your point is well taken . . there are those who “have the banking business” and those who “want the banking business” and those who’s “Capital Markets” units need a little help these days . .
Goldman’s abuses are just more blatant because they pay for “protection” in high places . . .
p.s.
here’s where Pat Cooper mentions the “two-way street”
you have to listen carefully . . it’s in the fight with his daughter . .
https://siriusbuzz.com/forum/showthread.php?p=46584#post46584
I just think if a firm has the responsibility, as well as the power to affect the price of an equity, EITHER way, they should be limited or at the very least, highly scrutinized and then regulated in the actions they can take to profit on that very same equity they have affected……………..
Especially when little Joe-Blow stock buy is out here ‘trading’, or even WORSE it appears, INVESTING with them and the ‘AMERICAN’ way !!
STOCK SHOCK !!!!
Right in Our Faces…………………
GS group bought the shares,they are a seperate entity from investment arm..HINT hint!! this makes it legal.
I’m glad I bought some of these very same bonds at .33 cents about 6 months ago and another batch at .66 cents on the dollar 3 months ago.
Tyler – Agree with you and also note that Liberty is a 40% owner of the stock, so their backstop is not only related to the bonds! They have every reason, more than anyone on this board, to want the equity/stock price to soar and will do what it takes to hit a home run with both the debt AND, even more so, EQUITY/STOCK!
Tyler, bottom line is your article points to the positive (follow the $$$ signs). Great job!
OOPS, Sorry Charles!