Sirius XM Continues to Exchange Shares for Debt
In an SEC filing today, Sirius announced that they have exchanged an additional 100 million shares for a total of 13 million of their 2.5% convertible debt due in February. For those that are mathematically challenged, this is an exchange rate of 13 cents per share. After this exchange, the company has $174,588,000 left in February debt.
This brings me even more confidence that bankruptcy is out of the question, as the large institutions who have done these exchanges surely have done their due diligence and would not make this exchange if the company looked like it was going under any time soon.
[SEC Filing]
I would expect them to sell 100M shares per week for the next few months to raise the balance of the Feb Debt, but will come up with about 100M in cash since they are running out of time. They will then replenish cash with continued share sale.
If they could just get a new term loan on the May debt or maybe even just a bit more 500M term loan, then they should be able to come up with the December converts with a combination of cash, small loan and mostly stock sale in exchange for debt.
Maybe they could get access to the 100M secured by MLB temporarily.
Come on Mel get it done.
I believe the MLB escrow account has $120M in it. So, adding around $55 in stocks and cash will take care of the Feb. debt — there’s no doubt in my mind that the may credit facility will be extended by UBS and JP Morgan. I think, and this is obviously my opinion, the December converts are the only unresolved issue at this time. The holders of the December notes should realize that if they decide to play hardball, Sirius can alway bankrupt XM as a seperate entity without affecting the parent, SIRI.
In addition, Mel has no excuse whatsoever for not coming though with refinancing — every single problem with the economy, credit markets and auto industry was evident and out in the open, so to speak, when he, his CFO and everybody else associated with Sirius said that there were confident about getting the job done. Short of World War III, Mel and company will have no excuse for failing.
“The thought of a default is riduculous OK, but you can predict anything you want to but…I need to deal with what’s out there, so if arb poeple–arbs out there playing games–all we can do is to grow our free cash flow, get the stock to reflect our value, and if we screw people along the way because they bet against us, that’s their own business.”
–Mel Karmazin
I think the problem is not that SXM will be forced to default on a payment, but that they may choose the BK route themselves in order to come out with a clean slate, fresh start and a better balance sheet. It would also kill the current shareholders.
I know that right now it doesn’t seem like a step that they would take, and we know all the arguments why they wouldn’t do this, but as more companies file for bk in the weeks and months to come, filing will become more acceptable on the street and some of the stigma will potentially fade… possibly making a bk filing more of an option
Mario – Filing chapter 11 before you need to, when you could have avoided default and bought time might become more acceptable in the coming months, but so will aggressive equity committes being certified by BK courts in these types of proceedings. When a company can pay it’s interest payments and only seek to extend terms on existing debt, commom share holders have the right to raise holy hell thru a certified equity committe. If Sirius XM does file, there will be a line of shareholders around the block to get certified themselves or be a voice in a certified committe. Since SiriusXM is not a typical dying company, and has such arguable intangible & tangible value, the common share holder may have a chance at something other than being completly wiped out during reorg if it happens… Depends on the trustee & the political climate. Hope it does not happen.
Without this 13 million dollars where would Karmazin and the other executives get their big fat pay checks? How much of this debt could have been paid off already if they had taken a pay cut. But they refused to do this and believe that they deserve the millions they are getting paid.
Tristan,
Do you even know what Mel’s salary is?
Tristan
Can you read! The company will not receive 1 dime from the sale of this stock! The 13M will be used to cancel/retire 13M of the 2% notes due in Feb.
Karmazin has been paid $18,347,436.00 since being hired at Sirius. So according to your logic, if my company authorized and sold 13 million dollars worth of shares and I then paid myself over 18 million dollars, I didn’t get a dime from selling those shares. I think you are being a little naive.
Karmazin and the board have taken two companies worth 13 billion dollars including 1.6 billion in debt and turned them into one company worth only 400 million dollars NOT including the 3.4 billion dollars worth of debt. But somehow Karmazin and the board feel they are doing such a great job they deserve to be paid millions of dollars per year.
As long as they aren’t making any money directly from diluting your investment, that’s all right with you…
Chip away, chip away, chip away… No matter what just keep moving forward… Based on the article there is nothing here that signals things moving in reverse…
Interesting to see what the final Q4 subs are going to be and the realization of synergies…
The Feb 09 debt will be taken care of… 10 of Merrill’s top bankers left Merrill and signed on at Evercore… They are all over the Feb debt like a cheap suit…
I’m long SIRI rockin’ my Dr. J converse with fat laces!!!!
Peace..
As fast as this stock fell it can rise back almost just as fast. A lot depends on the economy,but almost as much depends on what they do internally. HOPEFULLY once they get the debt secured they will finally focus on their products content,image and marketing. These are the generators of the subs. They need a new fresh image to go along with the merger. They need to go after the after market.They need to hire an advertising agency that is topshelf that can focus & connect to the all age groups and get it started w/ the Superbowl! They need to get off their high horse and listen to their subs to help tweak content. Just as important they need do find a way to sell the aftermarket products like cell phone companies have done (little money down for the equipment and add the rest to a long term agreement w/ the monthly sub.)You can argue that these things cost money to impliment but that’s business 101. As we all know it’s a great product, but more than most don’t know “jack” about SatRad. To most it’s a vague product that some of their freinds have but they still aren’t sure what it really offers. That’s SXM’s job to get the appeal of the product to the masses. If they do a good job of addressing these issues the money will follow. Sort of like “Field of Dreams” build it and they will come. Just ask around to your freind that have SatRad. Most will tell you that it’s almost a neccesity.
Nortel was one day away from their 100m debt deadline, when filed bankruptcy. Could be the parties are willing to take the shares, sell them on the open market, and run. I’m opposed to dillution, however will say you told me so, only after we see how this debt ending completes. Fantasy, fairytale or BOHICA.
The convert bond holders doing the exchange are shorting the stock first, then doing the exchange. Its a no-risk transaction for them. They are not betting on the company’s future.
youknowwho
By shorting the 100M shares, aren’t they limited to 13M in profits. But by going long, their upside potential is much greater as long as the company meets their projections. Your probably right, for the kind of money these guys have, 13M gamble is chump change.
youknowwho,
I’m concerned about that exact point. The last SI report shows that around 50 million shorts exited in the last two weeks of DEC and you would have never known at the time. People say there would have to be some big short run and I disagree. I think 200 mil shorts could be closed right before our eyes and we would never know.
But, what would it say if the bond holders took the shares for debt and sold right away for the cash AND closed their short position? Why would they leave the game completely?