SIRIUS XM... A Hell of a Debt Restructuring Job (SIRI)

Some management teams know how to work the system better and to take advantage of opportunity in the land of junk bonds better than others.  Take a look at the SIRIUS XM Radio Inc. (NASDAQ: SIRI) debt offering tonight and you will see what is a great job in a debt refinancing with lower rates and a longer maturity.  SIRIUS XM  announced that it priced an offering of $700 million of senior notes due 2018 and the notes priced at PAR value.  These are also 144A and Reg. S exempt, so they won’t ever really trade on the market under normal circumstances.

The annual rate is 7.625% for the $700 million collected from the offering before deducting the initial purchasers’ commissions and offering fees and expenses.  XM plans to use the proceeds to repurchase its 11.25% senior secured notes which mature in 2013 under a previously announced tender offer and consent solicitation.  Bloomberg listed the amount of the June 15, 2013 maturities outstanding as $525.75 million.

Sure, there will be fees and the “tender offer and consent solicitation” does not come without costs.  The win is that SIRIUS just dropped its interest rates by 3.625% for the duration in comparison and it simultaneously rolled out its debt maturity schedule from 2013 to 2018.  If you look through the consents and the prior releases, SIRIUS XM also sold $700 million versus what was expected to be at least $550 million.

The basics of the consent agreement in the tender announced this morning are as follows: “The total consideration for each $1,000 principal amount of notes validly tendered at or before the Consent Payment Deadline and purchased pursuant to the tender offer will be $1,120.  The total consideration includes a payment of $20 per $1,000 principal amount of Notes payable only in respect of Notes tendered with consents at or before the Consent Payment Deadline.  Holders validly tendering Notes after the Consent Payment Deadline but at or before the Expiration Time will be eligible to receive only the tender offer consideration of $1,100 per $1,000 principal amount of Notes, namely an amount equal to the total consideration less the consent payment.  In addition, holders whose Notes are purchased in the tender offer will receive accrued and unpaid interest in respect of their purchased Notes from the last interest payment date to, but not including, the applicable payment date for the Notes.  Tenders of Notes will be accepted only in principal amounts of $1,000 or integral multiples thereof.”

This is not exactly scientific math and admittedly is being worked out on the fly… If you take the $120 per thousand and use simple math, this 3.625% annualized savings without other consideration of fees and taxes that could differ, on a dollar per dollar basis comes to less than a 3.5-year break-even point.  You then have to calculate the other fees, taxes, and considerations, but that likely brings the terms using extremely simple math to a 4-year break-even or thereabouts.  In the long-term, this is a hell of a deal on the surface for SIRIUS XM and a management-led cost savings.  The company’s most recent balance sheet from June 30 shows that SIRIUS XM carried $3.019 billion in long-term debt.

SIRIUS XM shares rose 3.7% to $1.40 today and shares also today hit a new 52-week high of $1.44 with more than 156 million shares traded.

JON C.OGG