There has been a lot of discussion relating to share buybacks at Sirius XM (SIRI) for well over a year now. With the company performing well, banking money, and a positive outlook, it has been a desire by many shareholders to see share buybacks come to fruition. It would appear that the first step has now been taken.
Wednesday Sirius XM announced that it has entered into a $1.25 billion credit facility and one of the disclosures was that the company could use the funds to conduct share buybacks.
Sirius XM Radio Inc. (NASDAQ: SIRI) today announced that it has entered into a new $1.25 billion five-year senior secured revolving credit facility with a syndicate of banks and other financial institutions. The new facility is secured by substantially all the assets of the company and its subsidiaries and was not drawn upon at closing. The company will use borrowings under its facility for working capital and other general corporate purposes, including without limitation, share repurchases, dividends and the financing of acquisitions.
J.P. Morgan Bank, N.A. acted as Administrative Agent. J.P. Morgan Securities LLC acted as a Joint Bookrunner along with Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Morgan Stanley MUFG Loan Partners, LLC, Barclays Bank PLC, BNP Paribas Securities Corp., Credit Agricole Corporate and Investment Bank, RBC Capital Markets, RBS Securities Inc., SunTrust Robinson Humphrey, Inc., and Wells Fargo Securities LLC.
"SiriusXM's credit quality has rapidly improved and we are pleased that the bank market has recognized that fact by oversubscribing the deal, allowing us to upsize the facility to $1.25 billion. This new facility will allow us to continue to drive down average borrowing costs and more tightly manage cash and debt balances and it further strengthens our balance sheet by providing a substantial and readily available source of liquidity for strategic opportunities, including the return of capital to shareholders and acquisitions," noted David Frear, Chief Financial Officer, SiriusXM.
The concept of borrowing money to repurchase shares is the subject of much debate. This is especially true when you consider that Liberty Media (NASDAQ:LMCA), the company in the process of gaining control of Sirius XM, stands to benefit substantially from share buybacks. Liberty has stated that it would participate in buybacks so as not to increase its stake via them.
One goal of Liberty Media is to recapture the nearly $1.5 billion that it has invested into the purchase of Sirius XM stock. With an average cost of market purchases at less that $2.30, share buybacks at these levels could get Liberty on its way to recouping dollars. Ultimately, it is anticipated that Liberty Media will spin its Sirius XM stake in a tax friendly Reverse Morris Trust.
One thing that is certain is that Sirius XM now has the borrowing capability to begin a share buyback at any time. The $1.25 billion combined with cash from operations could allow a $1.5 billion share buyback plan sooner rather than later. At $3 per share, the $1.5 billion could potentially remove 500 million shares from a float that is well over 6.5 billion shares (fully diluted). While it may not be a huge dent in the share count, the process needs to start somewhere.
For investors and the street, this news now represents a level of positive uncertainty. It is easy to picture the equity making a positive move on any news relating to a share buyback. Because this is a credit facility and not a loan, the company can be very strategic in how and when shares are purchased.
Disclosure: I am long SIRI, LMCA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.