The Media Has Difficulty Realizing the Liberty Deal Is Not Bad for Sirius

By Brandon Matthews

It was just six months ago on February 17,2009 that Liberty Capital’s (LCAPA) John Malone stepped up and threw Sirius XM Radio (SIRI) a lifeline. Critics of the Satellite Radio provider quickly pointed at the increased interest rate of 15% that Sirius XM Radio would be paying out to Liberty, as they painted a picture of an outstanding deal on Liberty Capital’s part that came at the expense of Sirius XM.

Just Friday I read a similar article which boasted of the great Liberty deal, that suggested Liberty buy out Sirius XM Radio while the stock is still cheap, and again mentioned the 15% loan interest as if it somehow denigrated Sirius XM Radio. I hate to be too critical of such things, but the information I’m about to offer is public and readily available for those that take the time to do a little research before offering misinformation as fact. Some of that information interestingly enough made headlines earlier lasts week and can still be found on the front page of a Google (GOOG) news search of Sirius news, which makes it even worse.

Let’s start with the 15% interest on the loans that Liberty made to Sirius XM Radio. In the last 60 days Sirius XM Radio has completed two separate and successful bond offerings. The first was a bond offer that would be used to pay off the first part of the Liberty debt at a lower interest rate of 11.25%. The second, which occurred this week, was another offering that is to be used to pay off the second part of the Liberty loan. The interest rate on those notes is only 9.75 which is a full 5.25% lower than the interest that would have been due under the Liberty agreement. None of this has been lost on Standard & Poors, which has now upgraded Sirius XM’s credit rating for a second time this year. That upgrade will no doubt make other deals likely at even lower interest rates going forward.

With this second phase of new financing, the Liberty Credit Agreement is all but unwound, and it was unwound in only 6 short months. The media made a big deal over the initial deal, yet not a peep has been heard regarding the astonishing moves that Sirius XM has made in reducing its interest expenses by tens of millions of dollars. In fact the only part left of the Liberty Credit Agreement that remains intact is Liberty Capital’s equity stake, or rather its potential equity stake.

The media, it seems, has a hard time grasping the fact that as of now, Liberty does not have a 40% stake in Sirius XM. Liberty holds 12,500,000 shares of convertible preferred stock. Until Liberty decides to convert those shares, it is simply a holder of preferred stock. For accounting purposes, it is assumed that they will convert in the future but that is not likely to occur anytime soon, for the same reason that Liberty cannot buy Sirius XM Radio “on the cheap” at this time.

Under the agreement, Liberty cannot acquire more than 49.9% of the outstanding shares for three years from the date the preferreds were issued. The caveat to that is that after two years and in the event of a buyout offer from Liberty itself or another company that is priced higher than the closing price on the preceding day that such an offer was announced, Liberty may purchase shares which would drive up equity prices even further if another suitor joined in.

By limiting Liberty’s equity stake, this also gives Sirius XM time to become the highly profitable company most people expect it will become, which may allow Sirius XM to simply repurchase the preferred shares back from Liberty in the future, especially if Liberty decides at that time that the price tag for the Satellite Radio Provider is too high and opts instead to cash in their chips for a hefty profit. The winner in all of this regardless will be the holders of Sirius XM common stock at that time as the dilution of Liberty’s potential stake is already priced into the stock.

As Jim Cramer might say, “Sirius XM is like a lottery ticket” except that in this case, it’s like knowing the numbers in advance.

Position: Long SIRI

Comments

[scots slant:]

Scot's Slant here. More good news for SiriusXM. It's about time; been a long time coming.

By the way, there is one more thing: Is the talk true that SiriusXM might hook up with Verizon? With all the "deadzones" where Verizon cellular customers find no service, it makes sense that they would make use of SiriusXM sattellites for blanket coverage which would eliminate no-service areas and render cellular towers relics of the past....

Scot's Slant

Aug 16 09:11 AM

[R A F:]

For all of the reasons outlined above, SIRI is now trading from technical strength, in conjunction with the positive fundamentals that now prevail. The number one story driving expectations for Sirius XM's recovery is the resurgence of the auto industry in response to demand that has been pent up over the last year. The age of the U.S. auto fleet indicates that replacement and upgrades will continue over the next several years and satellite radio will be one of the core offerings to provide buyers enhanced value. The beneficial impact to revenues is sure to be substantial and prolonged and this expectation is now driving SIRI's recovery. With the threat of bankruptcy now completely refuted and off the table, a share price below 1.00 is being challenged by the markets, as this type of price is usually reserved only for companies on the verge of default and certainly not for companies int the early stages of a turnaround and recovery. SIRI's chart pattern confirms the stock has comleted a rounded bottom that began last October and completed with the upside break of .50 last week. Potential is now projected toward 1.00+ over the next six months to one year and substantially higher longer term. Within this trajectory of recovery, an objective of .75 is projected to coincide around the timing of the 3rd Qtr. release of earnings and guidance in November. Expectations should remain firm that the 3rd Qtr. and 4th Qtr releases (November and February) will reflect the revenue improvements associated with the resurgent auto sales and this dominant expectation should keep support solid on any near term pullbacks. Subsequent recoveries should eventually take out the previous overhanging zone of resistance around .60 - which will then reinforce positive sentiment about SIRI. It should not be long before analyst recommendations begin to recognize the significant turnaround of SIRI, coinciding with the improved credit ratings cited in the above article.

Aug 16 10:38 AM

[relmar2003:]

I few "professional, large, and supposedly credible sites" are now circulating wrong information about this company. Wonder why? Maybe because smart money is accumulating, and they are trying to keep the price low until then. Gee, ya think. Or they are just trying to ruin the company, which wont work, and only real harm can be done is the uninformed inexperienced investor selling on bad news received by these evil media outlets. Yes, I said evil, knowingly spreading wrong information about a company, who feeds families, has stockholders, debt issuers, debt holders, and millions of satisfied users is extremely evil behavior. Beyond immoral, why too nice a word for this behavior. Boycott all the media outlets that lie to you.

Aug 16 11:15 AM

[relmar2003:]

I mean way too nice a word, lol not why...

Aug 16 11:16 AM

[canis major:]

its truly unbelieveable what this company has had to overcome, from the lies and negative press to the depression and the deceitfulness, bashers and fools who just want to manipulate bad things. yea relmor, evil is the right choice of words for it. that said, hold on brothers, the train is about set to leave the station. great article as usual brandon

Aug 16 12:45 PM

[canis major:]

i'm seeing us at 2 bucks a share by years end, thats where it was consolidating before it tanked last summer. anyone else have a price target for years end?

Aug 16 12:59 PM

[canis major:]

sure would be nice to see insiders buying instead of selling.

Aug 16 01:05 PM

[Ken Romberg:]

are perferred shares converted share for share for common?

Aug 16 01:56 PM

[Tony Newhouse:]

What a refreshing change to see an article based on facts. You are one of the few authors that I have read that sticks to the facts rather then those that continue to misinform wih old news when it comes to Sirius XM, As always, great job Brandon! Sooner or later these bashers in the mainstream media have to realize that if they don't stop writing articles that are not backed by facts that they will lose any credibility that they may have. IMHO

Aug 16 03:45 PM

[BigVinnie:]

No retarded comment from siri dumb. He's been wrong since the beginning, and now he is seeing his last days in B.S ending. Right now the price of siri is .57 cents after trading hours. The bolinger bands are showing an increase in upward trading momentum and volume. This stock is already on its way to hitting it's 1 year estimated target of .60 cents, so from there it will be automatic for an adjustment of $1.10 by december!!!!

Aug 16 04:15 PM

[GeorgeS:]

Thanks for actually SAYING it Brandon. You're right, noone has been SAYING it, as if it's such common knowledge it would be boring.
I don't know what to expect of Liberty's stock.
It may be that if Goldman Sachs keeps getting exposed, the short manipulation may end now. Doubt it'll get to $2 year-end, maybe 1.40.
Hell, you should be damn thankful for Siri-Doom.

Aug 17 12:31 AM

[GabeDrew77:]

I was really hoping SiriDoom would chime in again. Highly entertaining, but often wrong. I do appreciated RAF's insight though: above and beyond my knowledge base. I'm just happy I bought 2000 shares at 14 cents to help offset my losses.

Aug 17 03:06 AM

[SIRI-Doom:]

Suckers Play – SIRI Risk Building up

I hope we all collecting a few extra pennies in this bounce.

Goldman Sacks is gearing up for the rev-split. They have let SIRI pump up and will make millions on the fall when the NasD letter of noncompliance arrives.

We have a very short time to see SIRI over 1.00 share. The rev-split is only authorized to December 18 2009 so, don’t look for an appeal. Mel will get it done…

SIRI is expecting the letter sometime after 12 September. The news alone is going to crash the sp…

Aug 17 08:18 AM

[jswede:]

these Sat Waves idiots are STILL spewing mis-information:

the 9.75%coupon bonds were issued at a 10.375% YIELD
the 11.25%coupon bonds were issued at a 12.9% YIELD

the interest rate is not the cost of the funds, it is the interest on the PAR amount borrowed.

the 11.25% coupon bonds were issued at 95% of par, meaning SIRI raised $500mil, but are paying 11.25% interest per year on $525mil, and have to pay back $525mil at maturity. that's a 12.9% yield, or 'total cost on money borrowed'.

BOTH deals came EXACTLY where the market expected them to.

Sat Waves is doing no readers any favors by writing, and giving advice, on matters that they do not fully understand.

Aug 17 01:32 PM

[hopin:]

Are you going to take advice from someone who doesn't keep track of the company news? Doom doesn't even know the RS authorization has been extended.... You want to listen to him?

Hello Jswede, Your post has a lot of numbers in it (exactly 11)
Could you please your great mathematical skills and include 4 more figures in here?
Annual interest payments before and after refinancing for these 2 isuses?
That would be great.. I'll sell all my shares (to you) if they are paying more.. Everyone should..

Aug 17 05:26 PM

[Sherwyn:]

SIRI-Doom, your information is incorrect.......at the last annual meeting, the authorization for a reverse split was extended to June of 2010. I am shocked that you didn't know that. Regarding SIRI's upward trend and positive guidance....me thinks thou dost protest too much!

Aug 18 01:32 AM

[connorport:]

At the end of the day i have to say thanks to all these media outlets that drove this stock into the ground as a certain few who researched and invested on fact an not media propaganda scooped up untold amounts of shares at under 10cents. My only regret was not pulling the trigger on a double down at 5cents. Anyone who panic dumps shares on news reports or buys stocks such as TXT on a media report from a middle eastern news article without doing the due diligence of ones own personal research should reexamine how they invest because 9 times out of 10 you will lose on this strategy. I personally up my stake by 5 times by looking at the bottom line fundamentals and asset leverage this company was packing. So far it has paid off.

SIRI Doom. Please try retyping your comments from one day to the next so we can see if you actually have an opinion or are just good at copy and paste. Try buying in so you can get rid of that attitude for not being on the band wagon from Feb. Dont miss out on the next up swing. You too can be somebody.


On Aug 16 12:45 PM canis major wrote:

> its truly unbelieveable what this company has had to overcome, from
> the lies and negative press to the depression and the deceitfulness,
> bashers and fools who just want to manipulate bad things. yea relmor,
> evil is the right choice of words for it. that said, hold on brothers,
> the train is about set to leave the station. great article as usual
> brandon

Aug 18 02:45 PM

[connorport:]

If you think about what dumping 3 more billion shares of stock out on the commons would do to the price you would see that this would not make business sence for Liberty. This is a leverage instrument that Liberty will use in the future to make favorable deals happen with SIRI while keeping competitors at bay. It seems everyone has completely over speculated this stock into the ground. I met a lady the other day that told me she had owned shares of SIRI before they went bankrupt. This is so typical of a lot of investors today. Its like buying a powerball ticket and never checking the numbers to see if you've won. Whats the point in playing. I sincerely tried to advise this poor woman that what she had still had value and kindly gave her an update on the progress of her equity. This is a great place to learn from if you figure out who here is a clown and who has real facts to contribute to the cause. In the market today one also needs a lot of guts and nerve to finalize the level of their position but in the end "Risk = Rewards". The key is to minimize the risk and maximize the reward. Stay tuned to SIRI for further delvelopments.


On Aug 17 12:31 AM GeorgeS wrote:

> Thanks for actually SAYING it Brandon. You're right, noone has been
> SAYING it, as if it's such common knowledge it would be boring.<br/>I
> don't know what to expect of Liberty's stock.
> It may be that if Goldman Sachs keeps getting exposed, the short
> manipulation may end now. Doubt it'll get to $2 year-end, maybe 1.40.
>
> Hell, you should be damn thankful for Siri-Doom.

Aug 18 03:07 PM

[connorport:]

If you think about what dumping 3 more billion shares of stock out on the commons would do to the price you would see that this would not make business sence for Liberty. This is a leverage instrument that Liberty will use in the future to make favorable deals happen with SIRI while keeping competitors at bay. It seems everyone has completely over speculated this stock into the ground. I met a lady the other day that told me she had owned shares of SIRI before they went bankrupt. This is so typical of a lot of investors today. Its like buying a powerball ticket and never checking the numbers to see if you've won. Whats the point in playing. I sincerely tried to advise this poor woman that what she had still had value and kindly gave her an update on the progress of her equity. This is a great place to learn from if you figure out who here is a clown and who has real facts to contribute to the cause. In the market today one also needs a lot of guts and nerve to finalize the level of their position but in the end "Risk = Rewards". The key is to minimize the risk and maximize the reward. Stay tuned to SIRI for further developments.


On Aug 17 12:31 AM GeorgeS wrote:

> Thanks for actually SAYING it Brandon. You're right, noone has been
> SAYING it, as if it's such common knowledge it would be boring.<br/>I
> don't know what to expect of Liberty's stock.
> It may be that if Goldman Sachs keeps getting exposed, the short
> manipulation may end now. Doubt it'll get to $2 year-end, maybe 1.40.
>
> Hell, you should be damn thankful for Siri-Doom.

Aug 18 03:07 PM