Why The Big Jump in XM Satellite Radio?

Oct.30.06 | About: Sirius XM (SIRI)

XM Satellite Radio (XMSR) shares jumped $1.37, or nearly 13% Friday to $11.94 on volume of more than 25 million shares, or more than triple its daily average. The obvious question: Why?

The obvious answer… well, there isn’t really an obvious answer. It may have something to do with the company’s disclosure of the completion of “the incentivized conversion” of about $42.6 million of 10% senior secured discount convertible notes due 2009, and 50,000 shares of its 8.25% Series C convertible redeemable preferred by issuing 23.5 million shares of Class A common. The filing said that the transaction closes conversion agreements with American Honda Motor Co., the U.S. arm of the Japanese automaker, and former board member George Hayward, who had previously held some of the 10% notes.

The company says that as a result of that transaction, it can now fully access its $400 million revolving credit facility; access had been limited by a term of the facility that required secured debt to be under $75 million, which it now is.

The transaction cuts XM’s interest payments by $15 million over three years. The company is still in the processing of repurchasing some additional notes and preferred shares; when completed the transaction will result in an increase in shares outstanding to about 305 million, about 10% more than the current total.

Okay, so does any of this explain the stock move? Was someone short the common as a hedge against the high-coupon convert? Is there some other reason that has nothing to do with this at all? I have no clue. Insights welcome.