Sirius XM plans US$550m bond issue

Satellite radio provider Sirius XM intends to raise approximately US$550m through the issue of 5-year senior unsecured bonds.
Net proceeds from the offering, which would be undertaken as a private placement to institutional investors, would be used to…

Satellite radio provider Sirius XM intends to raise approximately US$550m through the issue of 5-year senior unsecured bonds.

Net proceeds from the offering, which would be undertaken as a private placement to institutional investors, would be used to redeem all of the company’s outstanding US$500m 9.625% senior unsecured notes, due 2013. Any remaining proceeds would be used for general corporate purposes.

If successful, 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 8.8 to 9.0 times 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 that “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.