How Will Sirius XM Refinance Its Debt Now? 30 comments
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Business on the weekends in the financials is becoming commonplace with deals being cut, and major decisions being made while the rest of America is trying to have quality time with their families. this weekend we saw major activity once again. Lehman Brothers (LEH) is going bankrupt, Bank of America (BAC) bought Merrill Lynch (MER), AIG (AIG) is in turmoil, and even companies like Washington Mutual (WM) seem to be looking for a way out of a financial mess.
The depth of lenders and the ability of institutions to handle new debt is looming everywhere, including Sirius XM Radio (SIRI), which wants to refinance about $1 billion in the coming months. For a company like Sirius XM, the issue is paramount because its debt is looming and holding the equity down.
It seems with each passing day, the the list of potential suitors for the Sirius XM Radio debt is getting smaller, and this makes it more difficult for the debt to be shopped around. Additionally, those potential suitors that are still standing today may not be in a position to negotiate anything. It seems all those that would normally handle deals such as this are currently more concerned about their own financial situations, and their abilities to focus on a Sirius XM radio deal are limited.
As the landscape in the big financial picture keeps changing, the level of concern of the Street in the SIRI debt takes on a posture that simply would not have existed a year ago. The situation may have been very different if the merger process could have been shortened by only six months. People have often tried to quantify exactly how much of a toll the prolonged merger process has had on the company. As a matter of fact, that toll can not yet be quantified because the ramifications are still with us. Until this debt can be handled, the drag on the equity is still happening.
From a cash flow and revenue perspective, the SIRI debt may have looked attractive to lenders only six months ago, but now times are different, and those would-be lenders have graver concerns on their minds. Simple survival precludes new business.
Whether you believe in the sector or not doesn't really matter. The question at hand is whether Sirius XM Radio can either weather the storm or get the financing handled in such a way that the cash flow model remains stable or is not dilutive to the stock. Only time will tell, but given the situation with potential suitors, the debt issue does not look to have a short term solution at this point unless Sirius steps to the table with a firm such as Goldman (GS) or Bank of America.
At this point, the concerns with Sirius XM Radio may be more about the financial sector than with the operations of the company. In the past, it has been enough to simply worry about a company you invested in. Now, you have to worry about the companies that in the past have been the lenders as well.
There are likely still some rough roads ahead with the satellite radio sector, as well as any other sector. What is happening in the financials will have a trickle down effect. Right now those seeking loans are in a game of musical chairs. The difference from the past is that a lot of those that used to host the musical chairs game are now players in it as well.
Investors in this sector would be smart to watch the financials over the coming weeks. Lehman is gone, Bank of America has bought Merrill, and AIG is currently looking like a boulder on top of a cliff. Next weekend may well bring another round of turmoil. Until this situation eases, or until a firewall such as the Merrill deal stops the snowballing effect, anything that surrounds debt or raising capital will not be seen in a positive light.
Position - Long SIRI, account With Washington Mutual.
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This article has 30 comments:
Here, let me ease your mind for you.
As banks consolidate, they are actually being told, in a way, your good, dont worry, you wont fail. See, theres this thing called a keyboard, and it has numbers on it. The FED can type in any number it wants, and give that amount to any bank it chooses. Thats called God like power, in the economic world, the GOD is the FED, and they have told JP Morgan, BOFA, and a few other elite banks, dont worry, lend away, you will not be allowed to fail. Acquire other failed business in the process, by all means!!. Your right about one thing, there choices are narrowing, but they werent talking to Merill Lynch or Lehman Brothers anyway. And they paid 50 billion to buy a struggling Merill, I think they have 300 million for a prosperous Sirius. Dont worry, put your head on your pillow Tyler tonight, and have a nice sleep for a change. The manipulation in this stock dicates no bankrupcy, because if they were on the verge of bankrupcy, this stock would be trading at 20 dollars right now. Do you get it yet? You see my point?
99% of the time I enjoy your articles, but this one was pointless and did more harm that good...
What happened to reporting fact...
position: long siri and given up, account in Wamu
The refi has priority--Mel knows that. Don't forget that Stern is directly related to the downturn in the stock...he can't be happy. Look for a pop soon when the refi gets done. Mel knows it needs to be done asap.
*******
Sirius XM Sends Signals of Change
CEO Karmazin Seeks Revamped Financing and Subscriber Options for Satellite Radio
By SARAH MCBRIDE
September 15, 2008; Page B1
...Meanwhile, Mr. Karmazin's focus is to shore up investor confidence by refinancing $300 million in convertible bonds that come due in February, replacing them with bank debt. Last week, he told investors that he had already begun a series of meetings with banks. "They didn't want to hear that we're having discussions," Mr. Karmazin said. "They wanted it done." While the refinancing is a priority, Mr. Karmazin says he wants to arrange it at favorable terms; the last time he renegotiated debt in a hurry -- in July, the day before the merger closed -- the stock price dropped 16%. On the consumer front, the company is currently negotiating with big retailers like Best Buy and Circuit City to ensure top-notch placement and promotion for its product over the key holiday sales season.
Talk-show host Howard Stern's five-year, $500 million pay package, announced in 2004, included 34.4 million shares payable to him and his agent, Don Buchwald. Then, the shares were worth about $110 million; by the time he joined the company in 2006, they were worth more than $220 million because of the stock's sharp rise. Today, those shares would be worth $32.6 million.
The real issue way here too many stocks are out there for siri, all this shorting of this stock, will force the company to reverse….
As a small investor of 500 shares, I think I'm screwed...
Loyal fan, enjoy the product!
To understand the manipulation is only one small part, if you dont understand even that, you have no chance in this game, unless you never use margin, never sell on panic, only buy on dips, and only buy companies that make their quarters all the time. Then you have a chance. Or you buy on cycles, but these "cycles" are a form of manipulation in themselves. They alter and tweak them all the time. You never know whats going to happen, until it happens.
www.space.com/business...
Mel Kamazin stated at the Merrill Lynch 2008 Media Fall Preview that he hopes it doesn't come down to him lending the company money.
Does that mean he would be prepared to do that??
If yes, then at least worst case scenario he himself will finance the company to pay back it's debt in February.
So then what is there to worry about with regards to their Feb repayment?
they will likey pay well above market .50 + or - giving them a huge profit and giving siri enough cash to pay off 2009 debt .