Satellite radio provider Sirius XM is raising US$400m through the sale of senior notes due 2022.
The notes, which were offered to institutional investors via a private placement, carry a coupon of 5.25% and priced at par.
JP Morgan and BofA Merrill…
Satellite radio provider Sirius XM is raising US$400m through the sale of senior notes due 2022.
The notes, which were offered to institutional investors via a private placement, carry a coupon of 5.25% and priced at par.
JP Morgan and BofA Merrill Lynch are the joint book-running managers on the sale, while Citigroup, Deutsche Bank, Morgan Stanley and UBS are co-managers.
Proceeds from the notes are to be used to repay existing debt, specifically the US$631m outstanding of 13% senior notes due 2013. SiriusXM added that any excess would be maintained as cash on hand.
Over the past six months, SiriusXM has sought to sporadically reduce this debt, which it originally issued back in July 2008, purchasing approximately US$113.23m including interest.
The move is part of a wider strategy by the company to use its improved cash flow position to reduce its overall debt profile and significantly lower its leverage. Indeed, the company has seen a huge improvement in its leverage ratio over the past couple of years, from approximately 72.5x net debt to EBITDA in the first quarter of 2009 to 7.1x in Q1 2010, 4.8x Q1 2011 and 3.9x at the first quarter of 2012.
On 25 July, SiriusXM announced that it would redeem all of its US$186.1m outstanding of 9.75% senior secured notes due 2015 at a redemption price of 104.875% plus accrued interest. The redemption date is 1 September 2012.
Commenting on the repayment, SiriusXM chief financial officer and EVP David Frear said: “Our strong cash position and growing free cash flow profile have put us in a position to retire these notes three years ahead of their maturity, at the first available redemption date. The early retirement of these notes will reduce interest expense and eliminate the only remaining piece of secured debt on our balance sheet.”
In its second quarter 2012 results annoucement on 7 August, the satellite radio provider stated that its free cash flow had increased by 39% year-on-year to US$230m, the highest single quarterly free cash flow figure in SiriusXM’s history.
Frear stated: “We ended the second quarter with US$868m of cash, after the repurchase of approximately US$101m in aggregate principal amount of our debt during the quarter. Our leverage at the end of the second quarter of 2012 improved to 3.6x our adjusted EBITDA. Following the repayment of the 9.75% notes, our gross debt will stand at approximately US$2.7bn and our leverage, based upon our 2012 adjusted EBITDA guidance, will be at our 3.0x target, a significant improvement from 4.4x one year ago.”
Shareholder Liberty seeks further financings
These deleveraging plans, though, may be scuppered by its largest shareholder Liberty Media. In its second quarter 2012 results conference call, Liberty CEO Greg Maffei told analysts that there was plenty of scope for further financings in order to return cash to shareholders.
“Our view is that Sirius is underleveraged and there’s plenty of opportunity for share repurchases and other financial actions of the company which we deem as ultimately positive… We’ve noted that there is flexibility in the capital structure at Sirius, there’s plenty of availability for them over the short-term to lever further and return capital to shareholders including ourselves,” Maffei said.
Liberty, which owns a 46.2% stake, has been seeking to take majority control of SiriusXM and has filed an application for de facto control with the Federal Communications Commission.
If it receives approval, the media group has mooted the possibility of then spinning out its holding in a tax-free transaction, through a Reverse Morris Trust. However, Maffei suggested that in the short term Liberty would prefer to see the satellite radio provider raise money in order to return cash to its shareholders.
He argued: “I would say that an RMT in the short term is probably not as attractive to us in the next six months or so because we’re more interested in seeing them re-lever and get the appropriate valuation at Sirius. We think the valuation at Sirius is likely to go up on a re-levering or further levering of the company and we want to participate in that.”
