Sirius XM: Expect Significant Short Increase At Next Release

| About: Sirius XM (SIRI)


Short data is disseminated on August 26th for the prior reporting period.

Sirius XM's short data should increase significantly due to an outstanding agreement with bond holders.

It's not a cause for alarm, and is actually quite positive going forward.

NASDAQ will publish short interest data from the August 15th settlement date on August 26th. This data, specifically for Sirius XM (NASDAQ:SIRI) may be found at this link here. I fully expect this number, currently at 297 million shares sold short, to increase significantly when data is released shortly after the closing bell.

Individuals will often mention Sirius XM as one of 'the most shorted stocks' out there by number of shares sold short, and for awhile now this has been true. Generally this is coupled with that age old question 'what do the shorts know that we don't?' I think asking that question is a mistake.

The reasons?

First, Sirius XM's short interest is actually rather small when measured by percentage of the company. That near 300 million shares sold short are about 5% of outstanding shares.

Second, many of those shorts are likely hedged vs. either options or outstanding convertible bonds. A hedged position like this carries minimal risk, unlike a pure, naked short betting on the eventual demise of the company.

Recently I wrote a detailed article explaining the large increase in short interest in May. Please reference that article as it contains a lot of detailed information. The increase in short interest roughly matched the shares delivered under Sirius XM's accelerated share repurchase program or 'ASR,' details of which can be found in the most recent 10-Q. Those 112 million shares that were delivered had to come from somewhere, and it was and still is my assumption that these shares were shorted to Sirius XM vs. outstanding convertible bonds due in December.

As I said in the article, it's not a concern and is actually a good thing going forward as these shares are now repurchased and retired, and the 'risk' of them being shorted into the market or sold off after conversion should now be gone. Less uncertainty is a good thing.

Significant numbers of shares still remained, but the ASR was to be done in two parts. The second part should have completed August 1st, which leads to my expectations.

From the article :

The way I look at all of this is simple. This is a good move by Sirius XM, regardless of assumptions. The company was able to secure $600 million in shares at what appears to be a very good price of $3.15 per share compared to today's pricing of $3.45. If this repurchase is from the shares underlying the bonds, it should mitigate or eliminate concerns surrounding the bonds' maturity in December, as the "short" by the fulfillment party in the ASR would be covered by the shares. Investors should expect to see another large jump in short interest when it is disseminated on August 26th after market close for the period between August 1st and August 15th in relation to the final lot of shares being delivered to Sirius XM.

With that date upon us, it will be interesting to see if this is correct. Investors should welcome the news of increased short interest at around 75 million or more shares as it should show that the second part of the ASR has been completed and that another large portion of the convertible bonds are effectively locked away from being dumped on the market in December. That's a very big positive, as I know I and other investors are looking forward to the day that these convertible notes are retired and fading into the rear view mirror.

This is the last of Sirius XM's "bad" debt, and its expiration leaves a nice six year hole before any more debt becomes due. Six years. That's a nice long buffer for a company that will be running around $4 billion in debt and over $1 billion per year in free cash flow. It's easily serviceable.

So, watch that short data, expect a significant increase, relax, and smile if you see it has increased.

Disclosure: The author is long SIRI.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long SIRI January 2015 $2.50 $3 and $3.50 calls. I am long SIRI September 20th $3 calls.