Sirius XM Radio (NASDAQ:SIRI) had a slew of news hit the newswires on Friday.  They were added to the NASDAQ Q-50 index and refinanced 800 million in restrictive debt.  First news reported was that Sirius XM was offering 550 million dollars in notes that would be used to repay their 2005 500 million dollar bond issue, at 9 5/8%.  This was welcome news to Sirius XM investors, as it took down a large bond maturity year of over 1.8 billion dollars in 2013 to 1.3 billion dollars.  This reinforces investors views that the company would no longer be caught like it did in 2009, with more debt due than could possible be paid off with cash on hand.  As reported last week by KOAT, we predicted that Sirius XM would be removing these exact bonds in a matter of maybe days.  This proved to be true.  Then the results of the offering came in later that day.

Instead of receiving 550 million dollars, due to strong demand for Sirius XM debt, they were able to raise 800 million dollars instead, a full 250 million dollars more than they originally asked for.  Due to the increased amount garnered from the offering, Sirius XM stated they would use the added money to remove a 2012 senior secured loan that had very restrictive bond covenants on them, and limited Sirius XM’s ability in their corporate structure or just general plans moving forward.  These two debts being removed seemed odd at first to be targeting.  I mean, the loan has under 3% interest on it, and other bond debt had higher rates, or was due sooner.  That is until you look closer.

We find out that the 2005 and the 2012 loan had similar debt restrictions on them hindering the company’s ability to be flexible in multiple areas going forward.  This is from their filings on the loan.

“The Senior Secured Term Loan contains customary affirmative covenants and event of default provisions. The negative covenants contained in the Senior Secured Term Loan are substantially similar to those contained in the indenture governing SIRIUS’ 9 5 / 8 % Senior Notes due 2013. ”

Interesting.  In the filing on the loan, it actually mentions specifically these bonds due in 2005.  Well let’s see what bond covenants are on the debt and see if we can’t ascertain Sirius XM’s intentions here.

“Covenants and Restrictions

The 9 5/8% Notes, Loral Credit Agreement, SIRIUS Term Loan, XM Term Loan, 13% Notes and XM Revolving Credit Facility require compliance with certain covenants that restrict our ability to, among other things, (i) incur additional indebtedness, (ii) incur liens, (iii) pay dividends or make certain other restricted payments, investments or acquisitions, (iv) enter into certain transactions with affiliates, (v) merge or consolidate with another person, (vi) sell, assign, lease or otherwise dispose of all or substantially all of our assets, and (vii) make voluntary prepayments of certain debt, in each case subject to exceptions as provided in the applicable indenture or credit agreement. SIRIUS operates XM Holdings as an unrestricted subsidiary for purposes of compliance with the covenants contained in its debt instruments. The XM Term Loan and the XM Revolving Credit Facility also require XM to maintain a level of cash and cash equivalents of at least $75,000. If we fail to comply with these covenants, the 9 5/8% Notes, SIRIUS Term Loan, XM Term Loan, 13% Notes, the Revolving Credit Facility and any loans outstanding under the Loral Credit Agreement, the SIRIUS Term Loan and the XM Term Loan could become immediately payable and the Loral Credit Agreement could be terminated…”

Wow.  Those are some heavy conditions and affects almost every aspect of their business.  A company coming out of debt and cash problems and growing doesn’t want to deal with such terrible and restrictive conditions such as the ones above.  From calling the Loral Credit Agreement due immediately to being restricted from merging the subsidiaries of Sirius and XM, now Sirius XM, into one corporate structure as well.  As these 2 debts do affect their abilities to merge their corporate structure, this could be one of the main reasons for the move.  Possibly expect a new stock ticker soon, with a new company name at one point to emerge out of this.  This of course would cause shorts to scramble and close, and all naked shorts will be left high and dry.  This would be a great move by CEO Mel Karmazin.  In the least it enables Sirius XM to have the least amount of bond control in their board room.  This move further helps remove debtors from the inner workings of the company.  On another bullish note from the debt offerings, Liberty Media purchased 150 million of these notes, increasing their amount of Sirius XM debt they own.  Liberty now owns around 10 % of all Sirius XM debt.  This puts even more control in the friendly hands of their future global business partner, Liberty Media, which owns 40% of Sirius XM Radio through Liberty Capital (NASDAQ:LCAPA).

These notes are have a 8.75% rate on them, and are due in 2015.  This pushes 500 million dollars due in 2013 out to 2015.  It also removes the only debt due to maturity in all of 2012.  With cash on hand being used to remove all debt due in 2011, this removes all debt concerns until the year 2013.  And now 2013 is manageable.  These are great moves adding to the short term liquidity of Sirius XM, improves their debt structure, and enables them to be extremely more flexible by removing restricting debt covenants.

S&P did comment on the debt offering, and offered a very respectable B- rating on the offering.  This is their highest bond rating they have received since they began refinancing their debt in 2009.  S&P also maintained their positive outlook on Sirius XM in regards to their corporate credit rating, indicating another upgrade could be in the works again shortly.  Sirius XM recently had their credit rating upgraded and it may go up again, as S&P has a history, just last year, of raising their rating twice in a short period of time, and after an announced bond sale.

Moody’s also weighed in on the debt, and attached a Caa2 rating on them.  They had this to say about the offering.  Comments seemed generally positive.

“Moody’s believes the offering improves the intermediate-term liquidity profile by reducing the sizable amount of 2013 debt maturities to approximately $1.3 billion with minimal effect on overall cash interest expense. Debt-to-EBITDA increases moderately to 9.0x from 8.8x (incorporating Moody’s standard adjustments) and remains very high given the long-term reinvestment needs, but the improvements in the liquidity position over the last 12 months provide management additional flexibility to execute its growth plan and potentially reduce leverage to a more sustainable level. Sirius XM’s Caa1 Corporate Family Rating (CFR), B3 Probability of Default Rating (PDR) and the individual debt instrument ratings in the consolidated entity are not affected and the rating outlook remains stable.”

Basically the cost savings on any lowered interest rate is not quite made up due to the extending out of the debt 2 years, and the added costs of adding the notes.  But the short term positioning is strengthened, and their debt structure is much more removable today than yesterday.

Lost in all this bond news on Friday was another piece of great news for the company.  It was reported late Friday that Sirius XM would be added to the NASDAQ Q-50 index, which tracks the next best 50 companies that might be added to the elite NASDAQ-100, which is the equivalent to the DOW JONES on the New York Stock Exchange.  Interesting news coming from a company who is supposedly being threatened with a delisting letter tomorrow for the minimum bid price rule of over $1.  This is obviously not an issue, and as stated by Mel Karmazin in the February conference call on their Q4 earnings release, that they will file for the exception and would be successful in acquiring it.  This seems to further prove the point that this company is no danger of being delisted, or being denied an extension in time to trade over $1.  It seems a foregone conclusion now.  The perceptions of this stock are changing, and with an improving debt structure, positive comments from both the major rating agencies, and now full year free cash flow, I’m not surprised.  Throw in guidance growth, and one can see why they were added to the NASDAQ Q-50 index.

Regardless of  opinion about where the stock will be in the future, no one can deny that it is consistently moving higher. The volume of call interest is very strong, although unfortunately it is looking bleak for the remaining 80,000  of open interest  for the March 1.0 strike.

The Weekly chart shows the price action steadily above the 13 week EMA and recently pushing through the 50 week EMA which provides strong support at .71 cents.  Any bounce off of the 13 week or 20 week EMA would potentially be a good entry point.

Siri

In any case, Sirius/XM seems to have weathered the storm and continues to gain traction. OK,  the stock price did not hold the dollar mark for 10 straight days.  The small illogical side of my brain said that the evil conspirators out there would not let it happen.  Guess we all know how that turned out.  But I think everyone can see that it will continue to move forward in growth and not only provide a great service, but reward the common share holders who have the patience to stick it out.  Car sales from the majors like Ford (F), GM, Toyota (TM), and Honda are on the upswing as well as used car sales promos.

Personally I find it very difficult to believe that a stock so consistently at the top of the “most active” list is not going to be given the latitude it needs to stay above  $1.00 for ten days.    I don’t  think that is very far off but what I think amounts to nothing. The big boys with  the big dollars control the stock market folks. And it is their job to take your money.  Never forget that.

With a possible historic profitable conference call now around a week away, shares of Sirius XM Radio (Nasdaq:SIRI) are finally trading over the $1 mark for the first time in over 1 year.  This is welcome news to Sirius XM long term investors, as the chance to avoid a reverse split is now within reach.  Stock still has plenty of time to log 10 trading days over $1 before the March 15th date, even removing the need for the company to file an exception request, which Sirius XM has hinted at they would very well do if so needed. 

No specific news relating to this recent move, but a steady combination of news events has allowed reality to begin to settle in on the stock price of late.  With most EBITDA evaluations coming in way over the current trading price, any up move in this stock is not surprising.  With recent S&P corporate credit rating upgrades, Blackberry application release, and a press release from Sirius XM in early January confirming free cash flow and gains in their subscriber base, has helped move the stock in the new year. 

The stock began the year trading at 60 cents, and has never looked back yet.  Sirius XM has dramatically improved their balance sheet in 2009, so any stock gains are not unexpected, if not long over due.

Mel Karmazin, CEO of Sirius XM Radio, and Liberty Media CEO Greg Maffei (Nasdaq:LCAPA), which owns 40% of Sirius XM Radio, have confirmed reports recently of a global plan, which would include the services of Sirius XM Radio.  With recent Ford commercials citing a “global” Ford, and featuring Sirius Satellite Radio, speculation of possible additional revenues from a global venture has sparked interest in the common.  As a long term investment, regardless of recent gains, the future seems bright, and opportunities for global growth is definitely a real possibility.  Worldspace assets, which already has transmission rights in Europe, Asia, and Africa, are being controlled by Liberty Media, and a plan to move forward should be coming soon from the company.

Today was a day that reminded me just how predatory and evil some Wall Street movers and shakers can be. The negative slant and bias regarding SIRIUS XM and its stock was out there in all its glory with no less than 8..yes that’s correct 8 articles out of 10 bookmarked on YAHOO….all spewing negatives about SIRIUS XM. You’d think it was the only stock in the world that traded with that type of coverage; coverage by the way from Jim Cramer’s own thestreet.com (TSCM) and Realmoney. Take a look for yourself;

• XM SkyDock Receives Design and Engineering Award From Consumer Electronics AssociationPR Newswire(Tue 5:01pm)
• [video] Sirius Bonds — Not Commonat TheStreet.com(Tue 2:00pm)
• Sirius Mailbag: Time to Get Rid of Stern?at TheStreet.com(Tue 1:35pm)
• Martha Stewart Living Radio’s ‘Thanksgiving Hotline’ Launches on SIRIUS XM RadioPR Newswire(Tue 12:51pm)
• What Sirius’ Earnings Really Tell Usat TheStreet.com(Tue 12:44pm)
• [$$] How Are the Mortgage Insurers Still Viable?at RealMoney by TheStreet.com(Tue 12:40pm)
• [$$] Use Sirius Bonds to Play the Other Sideat RealMoney by TheStreet.com(Tue 10:59am)
• [$$] A Siriusly Unattractive Investmentat RealMoney by TheStreet.com(Tue 10:32am)
• [$$] Sirius XM: Radio Ga Gaat RealMoney by TheStreet.com(Tue 8:33am)
• Avoid Sirius; Try Some ETFs Insteadat TheStreet.com(Tue 8:33am)

 To make things even worse Jim Cramer himself is now going against his own word, and covering SIRIUS XM, a company he said was worthless and should be giving all common stock to the bondholders. He has stated that he is bullish the company and service, but not the equity. This is a 100 percent radically different opinion than Mr. Cramer had right before the merger, calling this stock a “$5 stock”. Adding only a 40% dilution to that figure, but adding in improved metrics as well, now the stock is “worthless”, according to Cramer. If anything, ration would dicate that it is at least worth 40% of $5, plus synergies realized, improved revenue, and critcally acclaimed new products. Investors of Sirius XM radio have been critical of Mr. Cramers complete 180 in this issue. Here is the free excerpt Jim Cramer lets you read to tantalize you to subscribe to his service, a service that has  its own set of critics by the way……

I have highlighted the important parts of his little fear job for readers. Ironically, if you remove the first sentence, it could almost read as making a bullish case for the equity and company, for the better the company performs, so increases the value of the bonds.

Use Sirius Bonds to Play the Other Side

By Jim Cramer

About this article:

If you like Sirius, do not play the common stock. The bonds are the best bet. Not that long ago, in the summer, Barclays put out a terrific piece about the 3.25% Sirius converts due 2011. These converts, which currently sell at 88, could be a great play on any turn, because they will get paid off at a nice gain. Barclays likes it because there is no other Sirius debt due ahead of it, and if it gets in trouble, Liberty Media, the new investor that injected capital, will make that debt good, because bankruptcy wrecks the principal asset that SIRI brings to the table: its gigantic operating loss. I am also drawn to the 9.625% notes that mature in 2013, a piece of paper that has zoomed in value since the decent quarter Sirius posted, and which trades more actively than all other bonds….

Mr. Cramer, you seem to have forgotten some numbers in your little excerpt. Try these on for size along with a couple of quotes:

                                  Sirius XM 3rd Quarter Results

Net Subscriber Additions of Over 102,000

 EPS, Excluding Charges, ($0.00) vs. ($0.05) YOY

EBITDA on track for over 400 million for 09

CEO Mel Karmazin quote:” We are focused on increasing EBITDA and FCF, as well as shareholder value”

Board Member and Liberty CEO Greg Maffei quotes “Our Sirius investment has performed very well” and “We consider Sirius XM to be the anchor of our LCAPA stock portfolio”

I would debate Mr. Cramer on his comments regarding SIRIUS XMs principal asset being it’s NOL carry forward…which although a nice asset is not the main or the biggest reason to own shares of SIRIUS XM. The biggest reasons to own SIRIUS XM common shares are the improving metrics and Business Model. The undeniable synergies created when these two companies merged, and the free cash flow, and EBITDA growth, coupled with subscriber growth and additional revenue streams, which all bode well for the company’s dynamic recent turnaround and the future. I just have to ask though, as I am sure many other folks who read this stuff do…why the street.com….and Jim Cramer are so interested in SIRIUS XM, and more specifically…why they are so interested in writing several days worth of negative articles in one day…which by itself should be looked at with questioning minds and skeptical eyes. As a matter of fact during the run to the second quarter conference call, Cramer said the stock should be given to the bondholders and that it was worthless. Scott Moritz of thestreet.com also managed to push the idea not once but twice that SIRIUS XM was on track to lose 2.1 million subscribers this year, apparently Cramer is doing a 180 degree turn and giving somewhat limited coverage on SIRIUS XM now.

Jim Cramer said himself that you are not supposed to foment the idea that a company is doing badly, but I guess that only applies to Hedge funds, and not lying corporate miscreants and malcontents. Yes Jim there are still enough sheep out there to keep you relevant, however more Sheep dogs are now around to protect those sheep from wolves like yourself. It is more than obvious what Cramer and his cronies are attempting to portray. This entire negative campaign is about getting you and me, the common stock holders of SIRIUS XM to sell our shares on fear of bad news and get out leaving any future gains and cheap entry to those who write the sort of negative articles with little or no facts and alot of purposeful omissions in the details and to Hedge Funds, Institutions and wealthy investors that have missed the boat to this point. The choice to be made belongs to you the retail investor. The SEC filings and recent events are all available for review right up to the Q3 filing of the 5^th of November. (http://investor.sirius.com/ ) I would suggest that ANYONE who has an interest, take the time to review and read those filings. Once you do, you will most likely be glad to have read this article. I am a Sirius XM subscriber and investor, and I write these articles to help you get to the bottom of the pile of steaming garbage that is disseminated in the mainstream media and on some blogs. Best of luck to all, and do your own due diligence.

Disclosure: Long SIRI

On September 15th, 2009, Greg Maffei of Liberty Media Corporation presented at the Goldman Sachs Communacopia in New York. Not much fanfare came from this presentation from Maffei for Sirius XM Radio (SIRI) investors, but maybe that was an oversight. Lost in the more seemingly important Liberty Investors Conference this month, and Sirius XM Radio’s own conference call coming very shortly, one might have missed some interesting and fascinating comments from one of the more powerful and important influences on Sirius XM, Greg Maffei. In case anyone is wondering who Greg Maffei is, a quick look into his past accomplishments and credentials is in order before going forward.

Greg Maffei is currently the President and CEO of all three Liberty Holding Companies, Liberty Capital (LCAPB), Liberty Entertainment (LMDIA), and Liberty Interactive (LINTA).

Liberty Capital includes Liberty’s holdings in Sirius XM Radio (SIRI), Viacom (VIA), Time/Warner (TWX), and Sprint Nextel (S).

Liberty Entertainment is where DIRECTV is held.

Liberty Interactive is where they hold QVC and a lot of their internet companies.

Greg Maffei discussed all of Liberty’s divisions during his presentation, but the commonality in all of Liberty’s interests is Greg Maffei himself and his background is truly impressive.

Maffei is currently on boards with Electronic Arts, DIRECTV, and Sirius XM Radio.  He has held the  position of Chief Finance Officer at Oracle, Chairman and CEO of 360 Networks, and a CFO of Microsoft as well. His resume is extensive, having been involved with many industry leaders in the past. This man has attached himself to success. He knows value and has extensive experience in the media and satellite world. He is familiar with Sirius XM Radio’s subscriber-based business model, and the challenges and positive aspects it provides. Since he is on the board of another subscription based service, DIRECTV, and he has a history of involvement in extremely successful companies, investors, analysts, and institutions listen very closely when he talks. In his discussions at this conference he discussed many issues that could affect SiriusXM, and he also spoke of SiriusXM directly as well.

Maffei’s background is mostly on the financial side of companies. As a former financial officer with Microsoft and Oracle, he knows numbers. He has an extensive knowledge of communication networks, media delivery systems, and software. Maffei being CEO of Liberty Media is no accident. Malone is a shrewd investor, famous for his ability to legally work the system, and gain tax advantages for his interests. He doesn’t have a history of buying into failures, and if the numbers didn’t work, I don’t think with a numbers man like Maffei running the show, Malone would have been interested in SiriusXM. Something looks good there, and dissecting his words we start to understand the bigger picture of Liberty, and why they hold certain assets.

When directly referring to Sirius XM Radio, Maffei stated that there is a lot of upside in the next few years.He also stated what a good job he thought Mel Karmazin and the Sirius XM Radio management team has been doing.

Maffei talked about the value of SiriusXM. The 8 billion in NOL is without question one of the huge values in Sirius XM Radio. To achieve this huge potential, first they need avoid triggering another change of control until 3 years after their preferred share deal with Sirius XM Radio, which is stated in their loan terms in February. They must also show a profit. Maffei must believe this is possible, or the tax benefits are lost because they are not transferrable to another asset, but remain exclusively with Sirius XM Radio. This strengthens LCAPB considerably, and according to Maffei, Sirius XM Radio is the core holding of this group, or at least in the core group. LCAPB has gone from $3 to $22 in a very short amount of time, crushing the market in the same time frame. Since they acquired Sirius XM, and just before, Sirius XM has also gone from as low as .07 cents a share to now as high as .78 cents a share, a gain of over 1000 percent from its lows, yet still priced as “undervalued” according to Maffei, as part of the core of LCAPB, whom he also calls undervalued and a great long term play even at $22 a share. Liberty has put their money where their mouth is as well, buying back one quarter of the shares of LCAPB. In this economy, that is a huge vote of confidence. As companies dilute, and struggle to make money, Liberty is buying back stock. When asked why only one quarter, which is an interesting question, as I felt this to be amazing to begin with, Greg Maffei said that they would have bought more but for other reasons weren’t able to at this time, but did not rule it out in the future.

Asked which of the three holdings he thought had the most potential, he cited LCAPB as the one with the most upside. This is a direct correlation to his thinking about Sirius XM as well.

He thought Liberty Capital has balance sheet flexibility, and was an attractive stock.

When asked about how Sirius XM Radio fits into their investment strategy, the interviewer asked if it is purely a financial investment, or did they intend to monetize that investment.

Maffei responded confidently that Sirius XM has been an excellent investment, a lot more to go there. Consolidation of the two players, mostly felt on the cost side, has been extremely beneficial to their balance sheet. He commented on how they went from a combined 2,300 employees, to now just 1,200 employees. He praised management for “rationalizing content”, and clearly stated that more cost cutting avenues would presented to them shortly. He also mentioned OEM deal renewals and content contracts coming due. He saw more increases as well on the revenue side, with auto sales increasing and royalty fees being passed on to consumers. He also commented on being “very bullish” on Sirius XM Radio as a business. As for monetizing this investment, he did admit to the challenge, but noted the underestimated and undervalued aspect of Sirius XM is their 8 billion in NOL that is attached to Sirius XM Radio due to years of losing money. He also warned that a change of ownership is not something you would want to “trigger lightly”. His comments seemed to hint that they already owned 40% and could add a bit more, but would be comfortable with this level of ownership for now. Total 100 percent ownership in their holdings is not a typical strategy for Liberty Media.

He was also asked if they were interested in going with a mobile TV service. Here is where some of his more interesting comments occurred. He commented that Sirius XM “will free up a whole bunch of spectrum over time, as they consolidate to one system.”

I know it seemed logical that they would always go this route, and seemed to be preparing the way with their new satellite technologies possible being interchangeable, but this is the first concrete evidence that Liberty is behind such a move, and actively thinking about it. The potential cost savings of such a move would be staggering, and the real dream of why many fell in love with the merger aspects to begin with.

Overall, his tone seemed confident, and his answers direct, with a clear plan in play for Sirius XM Radio as part of Liberty’s greater business plan. Making similar comments about DIRECTV, he stated he will “stay out of the way and let them run their business.” He is a good numbers man, and Malone can sniff potential. Between Liberty Media and Mel Karmazin (CEO of SiriusXM), they seem to be on the fast track to executing a mysterious, but likely solid plan of which investors have long been in the dark. Maffei is lighting a candle to this plan, and Mr. Karmazin will likely fire up the spotlights in the anxiously awaited Q3 conference call. Mel Karmazin has also been reported to have spoken at Liberty’s Investors Conference on Friday, offering some insight into what could be a ground-breaking quarter for Sirius XM Radio, as they hope to return both positive subscriber growth and their first ever pre-adjusted profit as a combined company. Hey, in the worst recession in 70 years, going through as many changes as Sirius XM Radio has faced, an accounting hiccup should not take away the luster of a company on the verge of profitability.

I didn’t even mention an Apple partnership…..

Ok, darn, I just did.

Disclosure: Relmor is Long Siri.