Sirius XM Waves Goodbye to S&P CreditWatch 25 comments
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Standard & Poor’s Ratings Services affirmed its corporate ratings on Sirius XM Radio Inc. (SIRI) and removed them from CreditWatch with developing implications, where they were placed on March 4, 2008.
The combination will eliminate the intense competition for subscribers and overbidding for programming contracts that has impeded profitability. “We believe the company could achieve significant operating cost savings,” said Standard & Poor’s credit analyst Hal F. Diamond, “though it may be challenged to meet its financial targets of $300 million in EBITDA in 2009, and positive free cash flow.”
New debt the company may wish to issue remains on CreditWatch with developing implications “until additional information becomes available regarding the ultimate capitalization and the effect of cost-saving plans and growth initiatives on secured and unsecured recovery at Sirius and XM.”
This should now enable Sirius to receive much better financing going forward.
Disclosure: Long Siri
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This article has 25 comments:
I am surprised that there haven't been conversations on this board or elsewhere that discusses the possibility of the XM or XM Holdings as a subsidiary "FAILING". What a unique way to eliminate your competition. Believe me before Mel screws stockholders of Sirius and now XM again, it is not completely out of the question to let XM fail. Just pull the plug. I know I'm being premature and drastic here, but lets look at all of the possibilities when it comes to true synergies. Operate one network of satellites and broadcast all of the best talent and content from both companies. Read the risks to doing business section of the 10Q very, very closely when it comes to XM's debt exposure and it operating entirely as a Self Supporting Subsidiary of Sirius XM Radio. The shares just lent for XM to get financing of its converts at 16% may be the last time the parent company jeopartizes itself to finance XM's debt. As a subsidiary, that is their right.
Your reference to financing in 2005, when they were generating only 65 Mil in revenue is laughable. This company is generating 2.4 Bil in revenue and just bought, oh that's right, merged with their competition giving them the rights to all assets, technology, subscriber base, and Brand loyalty. Under one license they own all of the Spectrum valued roughly now at 2.6 Bil alone (Estimated Spectrum Enterprise value not Goodwill). Interoperable radios complete the process. They will have ownership of all content. You can't see how they can get better financing because you haven't looked very close.
"Huge news. Huge."
"This should now enable Sirius to receive much better financing going forward."
not one of you guys have any idea of what is going on in the credit markets. or how they work in general.
1) the rating agencies have pretty much zero credibility right now and won't for at least the next half decade. in fact, they'll probably go under from the coming wave of lawsuits resulting from sub-prime and muni issues etc. The credit market is not, by any means, looking to S&P for an opinion on what a credit is worth. Not by a long shot.
2) the last large(er) non-investment grade deal was a B3/B rated issue -- several notches above SiriXM -- and they paid 12%... that is, 12% over the UST, for about a 14.5%coupon. Even better rated Texas Industries (Ba3/BB-) paid ~9% to borrow for 5 years... SiriXM is in the mid-teens if they come today.
3) even if this were 2 years ago, when S&P mattered, let's put this CCC rating into perspective: there are 17 ratings above CCC, and only TWO below, before you get to the "D" rating, which means default. This rating is already sh!t -- this move really only says "we're going to keep it there for the foreseeable future". once the refinancing of 09 goes into effect, and we're looking at interest rates in the teens across the board, then it's really lights out...
"much better financing going forward"... LOL. yea, maybe if they're lucky instead of 16%, they pay 15% next time. and it will have nothing do with S&P...
this news is about as insignificant as the "maddog" news... can we get a few more stories on that please?
and in all this time no one has even mentioned the fact that Mel called the last debt deals "ugly".... not once. he agrees the debt is killing him, but that's not worthy of a SA story, huh?
and cos, you really know a lot - I enjoy your posts, but if SiriXM allows its sub to default/fail, the parent co will never get financing again. as the XM sub goes, SiriXM will go.
With credit rating agencies being what they are, it would make sense that credit lending institutions would base their decisions on company operations and their future growth potential. If Sirius XM were to project and then execute merger synergies in the 550 - 650 Mil range and revenue growth of 40%, what would your opinion be of their refinancing abilities then. Sirius alone grew revenues 30% for the 6 months ending June 30, 2008? With "Best of Both" having the potential to growing revenues from existing subs from $48 mil (5.4% participation @ $4 per) to $480 mil (50% participation) in the 4th qtr 08 through the 3rd qtr 09, 40% revenue growth is not out of the question.
As far as my comment about letting XM fail, I also can see you point. Eventually operating decisions will have to made regarding the cost of running the two systems, but not for another 3-5 years. Decisions about satellite launches and the technologies employed will better determine that in the future (3-5 yrs). This is why installing interoperability in the OEM market should transition more slowly than the retail market. Hopefully the OEM units will also employ the latest navigation, inter-operability, and interactive downloading for a fee to hardrive / mp3 capabilities.
much better, obviously --- it's just the worst of timing ot have to go to market and borrow.. and they are also short on time... the credit markets didn't price in risk appropriately from, say 2003-2007, with financing getting cheaper and cheaper... and now it swings the other way -- financing is incredibly hard/expensive to come by. use the 16% yield on the 5yr bond and the 7% on the converts as a proxy. it's NOT going to be any better in 2009 for them. Credit will be hard to come by for years.
I hear your good numbers for revenue growth and synergies (and I don't dismiss them at all -- I was a big long bull until early 2008), but at this point I'm looking at it as being too late (and that's not all DoJ's fault)... they're paying $100mil/yr interest on only the $778.5mil par ($700mil face amt) amount they borrowed last month, and another ~$30mil/yr on the 7% converts... they are in a horrible spot for re-financing their debt in 2009...
do the math: if they get approx 15% rate on the $1bil that needs to be re-financed in 2009, that's ANOTHER $150mil/yr... (on top of the $100mil/yr interest from the 16% yield notes, on top of the $30mil/yrs interest on the new converts, and on top of the interest of the other $2bil in loans/bonds/converts..... (and yes, I know there is a line of credit included in the 2009 debt coming due, and a convert in there also... but it will hit equity holders just as hard regardless....)
I don't see them getting out from under this... Mel is hoping - like Lehman Bros, Merrill, and countless of regional banks - that this credit market recovers in short order and all is restored in the next months... but that's a dream -- this hangover will take many more years...
and the more SiriXM needs to borrow at high rates, the worse their credit standing gets, the higher cost to borrow, and so forth... it's a spiral.. you know this.
IMO, you're looking at SIRI buried in interest payments and if they want to survive, somewhere down the road perhaps in late 2009 or 2010, they have to strike a deal where they pretty much give away the company's upside to new capital investors, more or less wiping out, or diluting incredibly, the existing shareholders...
I LIKE THE SiriusXM story -- they are gaining traction and the synergies make sense -- it's just an "ugly" picture right now, to borrow Mel's words, and it's not getting prettier any time soon...
(my second bearish take on take on Siri draws nothing from my expertise, just from my experience as a consumer, and that's the coming internet radio competition - that competition has virtually no barriers to entry, no start-up costs, no debt... and the only good counter to that I've heard is SiriXM has "content"... that may be true, but even if they lose only 15-25% of potential customers down the road, it will seriously hurt.... and who's to say an internet radio station couldn't sign a big star, or a sports league, down the line using the same subscription service as Siri... with, again, no debt to worry about)
Now as far a Internet Radio entering the OEM or Retail Portable Markets, we haven't seen one example of the technology working "On the GO" yet. Wireless networks are still inadequate even if you include cell phone towers that make music sound like my old "Crystal Radio" clipped to the radiator (just kidding and showing you how long I've been at this technology thing) but the sound is not great. Even Chrysler's Uconnect product only works when the vehicle is stopped and it comes with a subscription fee of $29.00 / month plus hardware expense on the new car. I agree that Internet Radio will be a competitor but not for 3-5 years and by then I don't see the OEM penetration unless Sirius XM sleeps for the next 3 years. What are the chances of that happening.
Well anyways, these are just some thoughts that the next few quarters and years will see come through or not. I enjoyed the information and don't give up on being a long yet, but if your out....wait until after the debt issues are resolved before getting back in.
as far as IR... internet radio is not there yet, but this doesn't take long - wireless only got the the level of handling streaming radio, at this capacity, in the last year..... I don't think it takes 3-5 years, at all. I have 4 services on my iphone that get me 500 stations where ever I go (for free, with my std data plan, and I play it in my car stereo also)... now Siri wants to be right next to them in my iPhone, right?... well, IR will be right next to Siri in the car in short order... and no I don't think overnight Siri loses subscribers... but they will have competition... and competition that is starting with a clean balance sheet..
anyway, since it's just you and me left in this thread, I think we see each other's views -- I think we agree it's tight cashflows and a tight window to make it happen -- you feel strongly on the subscriber growth and synergies, whereas I'm less optimistic it plays out as well in the synergies and I think sub growth slows significantly in the next years...
take care cos - see you in the next discussion..
jswede & cos1000...
Good discussion and jswede, maybe I missed it, but where was your intelligent input all the while... This is what pisses me off about people who all along since about September who were contrarian, only came to post unintelligent schtick and bash those of us who were "can do" rather than "there's no way in hell." Of the disbelievers, jswede you and I'm Not Jim C were always the best of the bunch but discussion like the above would have been appreciated months ago. Not that it would have swayed someone like my opinion, but it would have just made the discussion that much richer when the chips were going down... rather than the name calling et al it usually turned into. On the pro side, we always tried to offer facts to support our opinions. Not always true from across the line. JMHO...
To your points jswede, you can't look at things like the SIRI debt interest aggregate in a vacuum. Most people have made that mistake about this company. They have just begun to operate as a combined company. Granted, they have challenges at present that seem insurmountable, but certainly only looking at it parochially is the wrong way to go. You have to break this down into stages. Looking at the biggest picture offers the most daunting look at failure. Ah, but compartmentalizing it, now you can start to chip away. You keep what you control in top shape and deliver your quality product, thereby delivering great Q's, and then you start getting creative. SIRI has too many assets not to be able to make up ground where they need to. No need to let XM BK. No way. What's wrong with selling some XM assets? Or excess spectrum? At the right times. Or whatever will make you leaner and meaner and chip away at that non-scenic debt mountain in the backdrop. You can get into all the numbers you want as things exist RIGHT NOW..but that in no way accounts for the creative future. Mel is showing everyone he still has it. And yes, a little luck never hurts either. We'll never know if Malone would have stepped in without Charlie pulling his little stunt, but Ergen certainly helped ensure this would happen. As the rest of the debt picture solidifies, look in the rest of '09 for more synergies, house cleaning, garage sales and whatever else makes sense for SIRI--the NEW SIRI. Using tight credit, slumping auto sales, scared consumers as a thesis for SIRI not making it is weak. Time to get creative, think outside the lines. John Malone is allowing for the new creativity to flow. He would never do this bridge if he didn't think it was right. We still don't know exactly how valuable SIRI is..but this powerplay has shed some light. If you look past the obvious, we are just learning that SIRI in total is way more than just a service pumped into autos, Howard frickin Stern et al...it alsp appears to hold a golden key that has not yet been revealed. Once it is, many of these issues you think are too much to handle will meet there match.
What am I missing...why should SIRI BK XM? That's not a step in the right direction...it's a pimps way out...
INJC...you and jswede were the best of the contrarians but this is what I was afraid of. Make pro's lives miserable, then at the last minute when what we've believed in all a long happens, you guys hop in for a fun ride. As said, I give you a pass because I think you and jswede are cool, but you know what I'm talking about don't you?
Here's the way I work life. Stand up for what you believe in and live with the consequences either way. You're in OR you're out. It's gotta be that way. Believing in one thing and standing up for it for a prolonged period of time, but then turning your coat inside out so it has the other color because it then reaps rewards, just ain't cool in my book.
I can't wait to hear from SatRad is Dead, Tavares, who else?..., Konst, MarkbMark, Hartlieb, and all else who gave up and ran and took pleasure in making the rest of our lives difficult. In the end Mel is coming through like he said he would.
No biggie. I get your point. But there should be no reason for BK. BK of any kind is detrimental to the SIRI consumer experience. Sure it may help on the investment side accelerate the appearance of profitability but at what price? BK should always be the last resort for anyone. I'd rather let Mel gain more traction, get creative and develop the new revenue streams that enable bringing the debt more in line. And if SELLING XM assets is prudent, he goes there. When you have excess assets to work with, you have options. But this should be the end of the BK talk. Not good for your consumers to hear that word. It makes you more vulnerable than it appears and creates too much doubt that then has to be overcome.
laaata
Liberty Media Offering Sirius XM Bridge Loan - Report
Friday 02/13/2009 7:38 PM ET - Dow Jones News
I agree with you comments about "Good discussion and jswede, maybe I missed it, but where was your intelligent input all the while.."
This thread has been great with points of view from different angles. A whole lot better than the bashing that was going on before.
Keep the thoughts coming....we have 3 days before the action heats up again.
Later guys!
Now, that being said there may still be an option to reconfigure existing satellites (either Sirius's or XM's) to transmit BOTH signals, not somehow allow existing XM receivers to accept Sirius signal through a magical firmware update. I think this was the point of that link to the patent about sending an alternate signal on a single transmitter. I am by far not technically able to figure out how possible this is, but it would satisfy the obligation to support the existing XM receivers and open the door to either BK XM or sell off it's assets.
>>There are perfectly logical reasons for Dish Network and DirecTV to be interested in acquiring Sirius XM, according to experts.
"Under both their mission statements, Sirius XM would fit quite easily," said Jimmy Schaeffler, chairman and senior analyst at the Carmel Group, a telecommunications research firm in Carmel, Calif. "They're both looking for a bundle to tie up with their satellite-TV services, something unique that they could use to compete with the telephone companies and the cable operators."
While technical limitations prohibit satellite providers from directly providing telephone service or a state-of-the art broadband offering, Dish or DirecTV could offer a package that includes satellite radio.
Also valuable to the satellite-TV players is the radio spectrum Sirius XM owns, which could be used for a variety of purposes, including wireless transmissions.<<