Approximately $2.8 billion of rated debt affected
New York, August 08, 2012 -- Moody's Investors Service upgraded Sirius XM Radio Inc.'s ("Sirius")
Corporate Family Rating (CFR) to B1 from B2 and Probability-of-Default
Rating (PDR) to Ba3 from B1. Moody's also assigned a B1,
LGD4-60% rating to the company's proposed $400
million of new senior notes. Associated debt ratings were upgraded
as detailed below. The upgrades reflect our expectations for improved
operating performance and credit metrics, including subscriber growth
above previously indicated levels and enhanced financial flexibility due
to its proposed refinancing resulting in near term debt reduction,
extended maturities, and stronger coverage ratios. The speculative-grade
liquidity rating is unchanged at SGL-2 and the rating outlook is
stable.
Upgrades:
..Issuer: Sirius XM Radio Inc.
....Corporate Family Rating, upgraded
to B1 from B2
....Probability of Default Rating, to
Ba3 from B1
...$186 million 9.75%
Sr Secured Notes due 2015, upgraded to Ba1, LGD2 -
10% from Ba2, LGD2 - 10%
...$800 million 8.75%
Sr Notes due 2015, upgraded to B1, LGD4- 60%
from B2, LGD4 - 63%
...$700 million 7.625%
Sr Notes due 2018, upgraded to B1, LGD4 - 60%
from B2, LGD4 - 63%
...$682 million 13% Sr Notes
due 2013, upgraded to B1, LGD4 - 60% from B2,
LGD4 - 63% (to be withdrawn upon completion of redemption)
Assignment:
..Issuer: Sirius XM Radio Inc.
...NEW Senior Notes, assigned B1,
LGD4 - 60%
Unchanged:
....Speculative Grade Liquidity Rating,
SGL-2
Outlook:
....Outlook changed to stable from positive
RATINGS RATIONALE
Sirius' B1 corporate family rating is forward looking and reflects Moody's
expectation that debt-to-EBITDA ratios will improve to less
than 3.75x over the rating horizon, compared to 4.4x
as of March 31, 2012 (including Moody's standard adjustments),
due to EBITDA growth in combination with proposed debt repayments.
Management announced plans to redeem the company's 13% senior
notes ($682 million outstanding) with proceeds from the issuance
of $400 million of new senior notes plus cash. The proposed
refinancing will extend near term maturities with new notes that are likely
to be priced well below 13% and will reduce debt balances by roughly
$282 million resulting in more than $60 million of annual
interest expense savings. In addition to reiterating its plan to
bring reported debt-to-EBITDA ratios to 3.0x (or
roughly 3.5x including Moody's standard adjustments),
management also raised its guidance for subscriber growth and, based
on our updated forecast, Moody's expects free cash flow will
increase to more than 20% of debt balances driven by net subscriber
additions as the economy and automotive sales improve accompanied by reduced
capital spending in the years leading up to the next satellite launch
cycle. Growth in the subscriber base will support improving leverage
and free cash flow-to-debt ratios, and position the
company to fund the next cycle of significant expenditures related to
construction and launching replacement satellites beginning as early as
2016.
Moody's upgraded ratings due in part to management's confirmation
of its leverage target and plans to apply net proceeds from the new senior
notes plus excess cash to redeem its 13% senior notes, despite
uncertainties related to the timing or the final form of the company's
eventual corporate structure including a controlling position by its largest
shareholder, Liberty Media, or a potential tax free spin-off.
"Moody's believes the additional financial flexibility provided
by Sirius' proposed refinancing and debt reduction will support
a financial profile that is consistent with the B1 rating category through
economic cycles and provides a sufficient buffer to acceptable levels
of share repurchases or dividends likely to occur after FYE2012,"
stated Carl Salas, Moody's Vice President and Senior Analyst.
The stable outlook reflects Moody's view that Sirius will achieve
its revenue and EBITDA plan for 2012 resulting in leverage and free cash
flow ratios improving to levels that are in line with management's 3.0x
target for debt-to-EBITDA ratios (company defined,
or an estimated 3.5x including Moody's standard adjustments).
The outlook also incorporates Sirius maintaining good liquidity,
even during periods of satellite construction, and the likelihood
of share repurchases or dividends funded from a portion of free cash flow.
The outlook does not incorporate leveraging transactions or significant
shareholder distributions that would negatively impact debt-to-EBITDA
ratios or liquidity. Event risk related to developments in the
final ownership structure creates uncertainty. The stable outlook
assumes that changes in the corporate structure will not adversely impact
the company's operating strategy, credit metrics, or financial
policies.
Ratings could be downgraded if debt-to-EBITDA ratios are
sustained above 4.25x after FYE2012 (including Moody's standard
adjustments) or if free cash flow generation falls below targeted levels
as a result of subscriber losses due to a potentially weak economy or
migration to competing media services, functional problems with
satellite operations, or unplanned capital investments. A
weakening of Sirius' liquidity position below expected levels as a result
of dividends, share repurchases, capital spending, or
a significant acquisition could also lead to a downgrade. Ratings
could be upgraded if management demonstrates a commitment to balance debt
holder returns with those of its shareholders. We would also need
assurances that the company will operate in a financially prudent manner
consistent with a higher rating including sustaining debt -to-EBITDA
ratios comfortably below 3.5x (including Moody's standard
adjustments) and free cash flow-to-debt ratios above 15%
even during periods of satellite construction.
The principal methodology used in rating Sirius XM was the Global Broadcast
and Advertising Related Industries Methodology published in May 2012.
Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
Sirius XM Radio Inc., headquartered in New York, NY,
provides satellite radio services in the United States and Canada.
The company offers a programming lineup of more than 135 channels of commercial-free
music, sports, news, talk, entertainment,
traffic, weather, and data services. Sirius also provides
music channels that offer genres ranging from rock, pop and hip-hop
to country, dance, jazz, Latin, and classical;
sports channels; talk and entertainment channels; comedy channels;
national, international, and financial news channels;
and religious channels. Sirius XM is publicly traded with Liberty
Media Corporation recently increasing its potential ownership interest
to 46.2%. Sirius had 22.9 million subscribers
as of June 30, 2012 and generated revenue of $3.2
billion for the trailing 12 months ended June 30, 2012.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
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Information sources used to prepare the rating are the following :
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Please see the ratings disclosure page on www.moodys.com
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for information on (A) MCO's major shareholders (above 5%) and
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Carl Salas
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Upgrades Sirius XM's CFR to B1 and PDR to Ba3, Assigns B1 Rating to New Senior Notes
