Does a SIRIUS XM Credit Rating Upgrade Matter? (SIRI, P)

SIRIUS XM Radio Inc. (NASDAQ: SIRI) has seen its corporate credit rating lifted in tone today by Standard & Poor’s.  The current rating of “BB-” was given a an outlook upgrade to ‘positive’ from ‘stable,’ which is not a formal upgrade but a signal of an upgrade ahead.  Generally speaking this lowers borrowing costs even if it is not a direct equity event.  Last week’s equity analyst upgrade actually made it to the Top 10 Analyst Calls of the Week, but today’s action may actually equate to less of a formal impact for the stock.

The outlook’s change was due to an improving auto market.  S&P noted that a subscription price hike is likely to increase its churn rate, so the growth should actually come from improving auto sales.  Where the call gets interesting is that S&P noted that the company does still face significant hurdles to maintaining consistent growth over the long-term.

We already saw a similar boost from Moody’s more than a month ago and yesterday was the first short interest report that did not grow in short interest in six straight twice-monthly reports.  Much of this has already been anticipated.

SIRIUS XM is even up above $2.00 even though Pandora Media, Inc. (NYSE: P) has now made it public so that it can try to become a more formidable competitor.  SIRIUS shares are up 3% at $2.06 today and we would note that the most recent stalling price for the stock has been around $2.08 to $2.10 in recent days.

If SIRIUS XM looks as though it can make it to investment grade status, its borrowing spreads will come in significantly.  Until the day that it looks like SIRIUS will be investment grade, this is probably just an incremental boost rather than a game-changing boost.

JON C. OGG