Wall Street Takes a 'Wait and See' Attitude Towards Sirius XM

By Brandon Matthews

As Sirius XM Radio (SIRI) prepares for its Q3 2009 conference call, most are looking to basic metrics of earnings per share, EBITDA, subscriber acquisition or loss, subscriber churn and acquisition costs. These are typical metrics that have the potential of moving the equity one way or another under normal circumstances. These are not normal circumstances, however. SIRI shares tend to rise into earnings release dates yet the equity seems to be “stuck” at .58 – .60 as Thursday’s earnings call approaches.

Another important data point that tends to move SIRI shares is the Seasonally Adjusted Annual Rate (SAAR) of new car sales. The SAAR rate is now being estimated at 10.5 – 10.6 million, with expectations of improvements in 2010 and 2011 based on auto sales data being released today. Normally, volume spikes in SIRI shares occur due to forward guidance improvements in the auto sales market and the price moves in conjunction with the added demand created for the equity.

Since October 22, 2009, Sirius XM shares have traded on relatively low volume, and continue to do so as the earnings call approaches and auto sales data shows some improvement. This forced me to wonder if perhaps my own focus on perceived “important data” is not misplaced. I believe I have found the answer while having a look at December 2009 debt obligations of both Sirius and XM.

A problem exists in that Sirius XM Radio has some debt obligations coming due on December 1, 2009. As the repayment or refinancing of these debt obligations has yet to be addressed by Sirius XM Radio, Wall Street is taking a “wait and see” attitude towards the equity.

Sirius XM reported that the company was sitting on over $540 million in cash and equivalents in the second quarter. There can be no doubt that one of the things that Wall Street analysts will be looking for during the current call is the company’s current cash position and any indication from the company that this debt will be retired from cash on hand. This will avoid any fears that may exist regarding dilution, default or new debt being taken on.

There can be no doubt also, that the holders of these debt instruments continue to hold short positions against the equity which will likely be covered with the repayment of this debt. Looking ahead to 2010, Sirius XM Radio has no other debt obligations coming due until 2011, and as such has but one hurdle left to overcome in one of the greatest turnaround stories that Wall Street has ever written.

Position: Long SIRI

Comments

[johnnyirishXM:]

as usual another BM poorly researched article on SXM,all debt except 33mil convertable bond and 1.7 mil bond has been paid for in July 2009 per 2Q report,proceeds from bond refi and cash on hand paid off 180 mil of bond...SXM stated this in the 10K from 2Q...
A little duer diligence goes a long way doesn't it...

JohnnyirishXM

Nov 03 08:04 AM

[Pell:]

Brandon are you doin the ole flippity flop?

RAF what's your veiwpoint?

These two guys have been playing the Longers for some time. I am a longer and SIRI long term supporter.

I was right all along guys. C'mon fellow longers give me my props!

They have been playin the day game (Maybe work for investment firms) for some time.

Keep given these guys thumbs up, NOT

Nov 03 08:43 AM

[R A F:]

It's all about greatly improved enterprise value moving forward. Please see my comments on the related article this morning: Sirius XM Q3 Earnings Preview: Unknowns Abound comments at 8:39AM.

These comments provide detailed background as to why I believe SIRI will maintain technical strength through the period immediately ahead and into the future. Risk/reward continues to favor holding long positions through this period, as upside potential is significantly greater than downside exposure.

Nov 03 08:58 AM

[Satwaves:]

Wrong Johhny. They have about 80 million coming due in less than 30 days.

There are 4 ways to handle it.

1. Default - Not an option
2. Equity offering - Won't happen
3. Refinance it and push the debt out longer...at what terms? Better or worse?
4. Pay it off in cash.

Clearly they will pay it off with cash on hand. Unfortunately, the company has not been clear on this or their plan to retire the debt.

Unforunately, confusion on the street exists because according to Sirius XM's last 10Q report, they owe about 260 million. If you read the fine print, you will find that the company has since reduced a 227 million dollar obligation to about 50 million.

as usual...another poorly researched comment...I expect more from you.

On Nov 03 08:04 AM johnnyirishXM wrote:

> as usual another BM poorly researched article on SXM,all debt except
> 33mil convertable bond and 1.7 mil bond has been paid for in July
> 2009 per 2Q report,proceeds from bond refi and cash on hand paid
> off 180 mil of bond...SXM stated this in the 10K from 2Q...
> A little duer diligence goes a long way doesn't it...
>
> JohnnyirishXM

Nov 03 09:35 AM

[johnnyirishXM:]

Wrong BM,go back to Feb filings they exchanged rest of that bond due in dec for Shares,look it up,i;m not doing it for you..they did FEB and dec bonds for shares exchanges before Liberty deal came along,only money due is 33mil and 1.7 mil.easily taken out in cash on hand...

Nov 03 10:39 AM

[cos1000:]

Johnny.... the math on the Dec 09 debt is fairly clear. The pushed 10% Bondholders out to 2011 in February / March to the tune of $172M. The snuck in the announcement of $179M being paid with the June 30th Notes Sold. That is $351M of a $400M Dec bond obligation paid, leaving $49M outstanding. There is also a $34M convertible due that has a convert rate of .69/share.... That may convert no one knows yet. They also have the $1.7M that will be paid for in cash. The convertible debt may cause further dilution of 49M shares or take some of their cash of the table. So it will either be a hit of $84M in cash or $50M and more dilution.... both are within range of the company to handle.... no drama, just business.....
> due in dec for Shares,look it up,i;m not doing it for you..they did
> FEB and dec bonds for shares exchanges before Liberty deal came along,only
> money due is 33mil and 1.7 mil.easily taken out in cash on hand...

Nov 03 10:52 AM

[R A F:]

Trading is all about looking forward, not in the rear view mirror. The road ahead for Sirius XM is highly favorable, based upon expanding potential emanating from two major sectors: Auto resurgence and the explosive growth of wireless/internet platforms - both of which will support substantial penetration by satellite radio and the enhanced user value this unique content and seamless delivery affords.

Nov 03 11:47 AM

[johnnyirishXM:]

Cos,agree,but note to consolidated financials quotes 179 mil from refi AND coh to retire dec debt....key being retire...think i'm right on this...


On Nov 03 10:52 AM cos1000 wrote:

> Johnny.... the math on the Dec 09 debt is fairly clear. The pushed
> 10% Bondholders out to 2011 in February / March to the tune of $172M.
> The snuck in the announcement of $179M being paid with the June 30th
> Notes Sold. That is $351M of a $400M Dec bond obligation paid, leaving
> $49M outstanding. There is also a $34M convertible due that has a
> convert rate of .69/share.... That may convert no one knows yet.
> They also have the $1.7M that will be paid for in cash. The convertible
> debt may cause further dilution of 49M shares or take some of their
> cash of the table. So it will either be a hit of $84M in cash or
> $50M and more dilution.... both are within range of the company to
> handle.... no drama, just business.....

Nov 03 11:53 AM

[Satwaves:]

Johnny, you are absolutely 100% wrong.

Nov 03 12:08 PM

[Satwaves:]

Here are the facts :

www.satwaves.com/forum...

Nov 03 12:09 PM

[Pell:]

WOOOOOOOOOOOOOOOOOOOOOOW!

Nov 03 03:08 PM

[connorport:]

Thanks guys for all the information. I have been out of pocket but like the quick facts to keep me abreast to the situation here. Lets see if the nail biter in Feb was worth it. I think if we see anything positive here we will see the run back over a dollar.

Nov 03 05:12 PM

[homer985:]

With all the back and forth in the comments section, I can't figure out who said what... what I do know is this. As of June 30, 2009, Sirius and XM had the following coming due this year:

-- 8 3/4% Convertible Subordinated Notes due December 2009, $1.75MM
-- 10% Senior Secured Discount Convertible Notes due December 2009, $33.25MM
-- 10% Convertible Senior Notes due December 2009, $227.5MM

Then in July, XM used a portion of its June debt offering to repurchase $179.1MM of the 10% Convertible Senior Notes. This left $48.4MM remaining outstanding on these notes.

IMHO...

-- The $1.75MM in Sirius 8.75% Notes will be repurchased with cash on hand;
-- The $48.4MM in XM 10% Notes will also be repurchased with cash on hand, or possible an exchange offer with the holders for shares;
-- $33.25MM in XM 10% Notes are held by Honda. Honda will work out some deal to exchange these for shares, IMHO.

The amount of cash needed to fund these maturities will be around $50MM, IMHO. Keep in mind though, that while Sirius and XM had a combined $541MM in cash on hand -- $179MM of that was used to repurchase those XM Notes, reducing the cash to $362MM.


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Nov 03 08:24 PM