Sirius XM completes US$800m bond offering

Satellite radio provider Sirius XM took advantage of the buoyant bond markets to increase the size of its note offering by US$250m to US$800m. The company issued five-year senior unsecured bonds in a private placement to institutional investors. The…

Satellite radio provider Sirius XM took advantage of the buoyant bond markets to increase the size of its note offering by US$250m to US$800m. The company issued five-year senior unsecured bonds in a private placement to institutional investors. The notes bear an interest of 8.75% per annum and are priced at par to yield the same amount.

Liberty Media, which owns just over 40% of Sirius XM, purchased approximately US$150m of the notes being offered.

As with previous Sirius XM financings, JPMorgan was the sole bookrunning manager on the issue.

Net proceeds from the offering are to be used to redeem all of the company’s outstanding US$500m 9.625% senior unsecured notes, due 2013, as well as to prepay all US$244m of its borrowings under its senior secured term loan that matures in 2012. Any remaining proceeds would be used for general corporate purposes.

The transaction would reduce the amount of debt maturing in 2013 to approximately US$1.3bn. Alongside the 9.625% notes, which were issued via a Sirius subsidiary, the DARS operator has US$778.5m outstanding in 13% Senior Notes and US$526m outstanding in 11.25% senior secured notes, both issued via XM.

Overall cash interest expense is not expected to be adversely affected due to a recent ratings upgrade, although Sirius XM’s leverage would increase from 8.8x to around 9.2x net debt-to-EBITDA.

According to Moody’s, which has assigned the debt a Caa2 rating, the bonds are effectively subordinated to the US$501m of secured debt at Sirius XM, with respect to the legacy Sirius operating assets, and the debt at subsidiaries XM Radio and XM Holdings.

Moody’s added: “the refinancing removes one potential restriction to merging Sirius XM with XM Radio and/or XM Holdings in that the 9.625% notes have a covenant limiting secured debt to US$500m. Sirius XM and XM Radio combined have approximately US$1bn of secured debt. Moody’s anticipates that the company would seek to merge Sirius XM with XM Radio and/or XM Holdings if it is economically sensible to do so and if permitted within its various debt agreements.”

The new notes have a change of control put at 101% (except a merger of Sirius XM with XM Radio or XM Holdings is permitted), a 6x debt incurrence test and a limitation on secured debt equal to the greater of 3x operating cash flow and US$502m.

The transaction is not the first time in recent months that Sirius XM has upped the overall size of the financing after the notes priced. Back in August 2009, the satellite radio provider increased the size of a planned bond offering around 50% following strong demand from investors. The company issued US$525.8m of four-year 11.25% senior secured notes having originally proposed to issue US$350m worth of the notes. As with this latest debt, proceeds were used to repay existing debt, in this case XM Radio’s outstanding senior secured term loans and the US$150m 15% second lien term loan, due May 2011, that was provided by Liberty Media as part the US$530m financing package that the two parties agreed back in February 2009.

Sirius XM fails to regain Nasdaq minimum share price compliance

Sirius XM has been informed by Nasdaq that the company has not regained compliance with the US$1 minimum closing bid price requirement for continued listing.

Sirius will request a hearing before a Nasdaq Listing Qualifications Panel at which it will ask for continued listing on the exchange pending its return to compliance.

Mel Karmazin, chief executive officer of Sirius XM, said: “Sirius XM is one of the most liquid securities on The Nasdaq Global Select Market; we have a large investor base consisting of both individual and prominent institutional stockholders; and our equity capitalisation is greater than approximately 92% of the companies listed on The Nasdaq Global Select Market. We are committed to remaining listed on The Nasdaq Global Select Market.”

Sirius XM has more than 3.7 billion shares of common stock available in the public float. It has an equity capitalisation of over US$5.8bn and an enterprise value of nearly US$8.8bn.

The company’s share price first fell foul of Nasdaq rules in October 2008, just two months after the protracted merger of Sirius and XM. Due to the credit crisis, it was given temporary suspension until Nasdaq sent its warning in September 2009 that Sirius XM had breached Nasdaq rules. The company was given 180 days, or until March 15 this year, to regain compliance.

In late January 2009, Sirius XM reported that it expected to report a profit and be cash flow positive for 2009, leading to spike in its share price to over US$1. However, on February 26 the stock fell below the required minimum level and Sirius XM was once again in breach of Nasdaq rules.

Due to the length of time that Sirius’ share price has remained below US$1, the company’s shareholders already approved a potential reverse stock split back in May 2009. While this would certainly restore the share price to the necessary compliance price, the Sirius board are likely only to do so as a matter of last resort.