Add another feather to the cap sitting atop Sirius XM's (SIRI) head. This morning, Aug. 21, Sirius XM issued a release that said it will retire in full all $681,517,000 of its outstanding 13% Senior Notes due in 2013.
Sirius XM Radio announced today that, on Sept. 20, 2012, it will redeem all of its outstanding 13% Senior Notes due 2013 (the "13% Notes"), CUSIP Nos. 98375NAA8, U98407AA4 and 98375NAB6, at a redemption price equal to the sum of the present values of the principal amount and the remaining scheduled payments of interest on the 13% Notes to be redeemed discounted to the redemption date, plus accrued and unpaid interest (the "13% Notes Redemption"). As of Aug. 21, 2012, $681,517,000 of the 13% Notes is outstanding.
This is excellent news for those who are long Sirius XM. While the news itself is not necessarily surprising given Sirius XM's issuance on Aug. 13 of $400 million in new 5.25% debt due in 2022, it answers the question of what Sirius XM plans to do with at least some of the pile of cash it now has sitting around.
Much speculation has been tossed back and forth about what Sirius XM will do with this growing pile of cash, and it seems that at least for now, debt repurchases and refinancing is the name of the game. Consider on July 25 a similar announcement was made surrounding $186 million in 9.75% debt due 2015, which will be paid as of Sept. 1. With the new announcement, that brings the total of debt repurchases and retirement in September to $867,629,000. This is important to consider for investors moving forward, as the interest savings will be significant to Sirius XM's bottom line. Executive VP and CFO of Sirius XM David Frear noted the following:
The successful issuance of the 5.25% Notes and our strong cash position allows us to retire all of our 13% Notes more than 10 months prior to maturity. Following the redemption of these Notes, our next notes maturity will be on Dec. 1, 2014.
Consider all the positives:
- Strengthening cash position at Sirius XM bolstered by increases in current and projected free cash flow.
- Decreasing debt-to-equity ratio due to early repayment of over $867 million worth of high interest debt.
- Reduced interest payments and borrowing costs, driving more cash to the bottom line.
- No debt payments due until Dec. 1, 2014, which is over two years away.
- Greater financial leverage, allowing for issuance of new debt at lower rates for future uses such as share buybacks to reduce the outstanding share count. It has been speculated that this will be one of Liberty Media's (LMCA) first orders of business after moving to control Sirius XM.
Any way you slice it, early debt repayment is a good thing and sends a message to investors that Sirius XM is in a much stronger position today than it was when the debt was issued. It's good news, folks. While this news was partially expected, the release of a solid date for repayment cements these plans from a "maybe" into a "yes." Moving from uncertainty to certainty, especially on good news such as this, should have positive material impact on the share price of Sirius XM moving forward.
Disclaimer: 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.