SIRIUS XM Radio Inc. (NASDAQ: SIRI) may have some risks for new Pandora web radio to the car and over Howard Stern’s contract expiration at the end of 2010, but that is not keeping the upgrades from coming. One day last week we saw three positive research calls, and then tonight we saw another debt upgrade. This round went to Moody’s. The upgrades affect about $2.3 billion of SIRIUS XM debt as follows:
- Corporate Family Rating to ‘Caa1’ from ‘Ca’
- Probability of Default Rating to ‘B3’ from ‘Caa3’
- and speculative-grade liquidity rating to SGL-2 from SGL-3.
Moody’s noted that the upgrades reflect a continued expected operating result improvement and recent refinancing actions to term out debt. These combined have improved the company’s liquidity position and also ‘significantly lowered near-term default risk.’
The upgrades note realized merger synergies and a subscriber-base stabilization. Also noted was the recent announcement of positive EBITDA in 2009.
As with all ratings of this sort, the ratings are still well into junk territory and come with the concerns despite the raised ratings. Moody’s noted that leverage remains very high at about9.7-times incorporating standard adjustments. This is based upon long-term capital reinvestment needs of the company/sector, but the improved liquidity offers additional flexibility to execute its growth plan and potentially reduce leverage. Moody’s noted that despite a $100 million cash flow announcement, SIRIUS XM would have ‘been a user of cash absent a significant working capital inflow during the year.’
There were 5 actual debt issues included in the upgrade for secured and unsecured notes. While the outlook was left as positive in prior upgrades seen, Moody’s gave the “positive’ outlook a change to ‘stable.’ That should in effect take care of the Moody’s upgrade cycle for the time being.
SIRIUS XM hit a new 52-week high of $0.89 today before closing at $0.88 on the day. Shares are back up at $0.89 after the announcement, making this one eligible for new 52-week highs on Tuesday if the after-hours trading prices hold up. This is still going to be short of many hopes for those who bought stock before late-2008 and held… but it is still a move in the right direction for the company.
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JON C. OGG
February 1, 2010