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Rating Action:

Moody's Upgrades Sirius XM's CFR to B3, Assigns B3 Rating to Proposed Unsecured Notes

13 Oct 2010

Approximately $2.9 billion of debt instruments affected

New York, October 13, 2010 -- Moody's Investors Service upgraded the Corporate Family Rating (CFR) for Sirius XM Radio Inc. ("Sirius XM") to B3 from Caa1, its Probability-of-Default Rating (PDR) to B2 from B3, and the ratings for individual instruments, including those for its wholly-owned subsidiary, XM Satellite Radio Inc. ("XM Radio"), as outlined below. Moody's also assigned a B3, LGD4 - 65% rating to the proposed $550 million offering of senior unsecured notes due 2018 to be issued by XM Radio. The speculative grade Liquidity Rating remains unchanged at SGL-2 and the rating outlook is stable. Net proceeds from the proposed debt issuance will be used to tender for XM Radio's 11.25% senior secured notes due 2013 and pay related fees and expenses. The planned repayment of the 11.25% senior secured notes would reduce 2013 maturities to approximately $780 million, resulting in enhanced financial flexibility not only through the maturity extension but also through the reduction (and elimination of most) of the company's secured debt.

Assignments:

..Issuer: XM Satellite Radio Inc.

....NEW $550 million Senior Unsecured Notes due 2018, Assigned a B3, LGD4 - 65%

Upgrades:

..Issuer: Sirius XM Radio Inc.

....Corporate Family Rating, Upgraded to B3 from Caa1

....Probability of Default Rating, Upgraded to B2 from B3

....9.75% Senior Secured Notes due 2015, Upgraded to Ba3, LGD2 - 12% from B1, LGD2 - 22%

....8.75% Senior Unsecured Notes due 2015, Upgraded to B3, LGD4 - 65% from Caa1, LGD5 - 73%

..Issuer: XM Satellite Radio Inc.

....11.25% Senior Secured Notes due 2013, Upgraded to Ba3, LGD2 - 12% from B2, LGD3 - 32%

....13% Senior Unsecured Notes due 2013, Upgraded to B3, LGD4 - 65% from Caa2, LGD5 - 76%

....9.75% Senior Unsecured Notes due 2014, Upgraded to B3, LGD4 - 65% from Caa2, LGD5 - 76% (to be withdrawn)

Unchanged:

..Issuer: Sirius XM Radio Inc.

....Speculative Grade Liquidity Rating, SGL-2

RATINGS RATIONALE

The upgrade of Sirius XM's CFR to B3 reflects our view that EBITDA (incorporating Moody's standard adjustments) less capital spending to interest expense will grow and comfortably exceed 1x in 2011, reflecting higher than anticipated subscribers and revenue and reduced debt service and programming costs. As announced on October 1, 2010, the company expects to add more than 1.3 million subscribers in FY2010, bringing the year end total to 20.1 million and exceeding prior expectations. Despite high churn in the subscriber base, vulnerability to cyclical consumer spending, and increasing wireless competition, we believe subscriptions will grow through the end of 2011 as the economy and automotive sales recover. Heightened capital spending related to the ongoing construction and launch of two satellites will likely limit free cash flow generation in 2011. The rating also reflects the company's sizable debt burden as well as the need to invest significantly in programming, marketing, launching new services, and maintaining a satellite fleet to attract subscribers in addition to delivering content.

The stable rating outlook reflects our expectation that annual sales of new automobiles will increase over the near term and credit metrics will improve as the company reduces debt balances with free cash flow. Given that Sirius XM equipment is installed in greater than 50% of new automobiles being sold in the U.S., more new vehicles enhances the potential subscriber base. Moody's research provides a base case forecast for the sales volume of light vehicles in the U.S. indicating an estimated 13.5 million units to be sold in 2011 compared to 11.5 million units estimated for 2010.

A growing subscriber base, improving EBITDA margins, and sustained lower leverage could result in an upgrade. Sirius XM would also need to maintain sufficient liquidity to be upgraded. Ratings could be downgraded if subscriber losses, functional problems with satellite operations, or unplanned capital investments reduce free cash flow below expected levels. A weakening of the liquidity position including an inability to access capital markets or generate sufficient cash flow to proactively address 2013-2014 debt maturities could lead to downward rating pressure.

Liberty Media Corporation holds preferred stock that is convertible into approximately 40% of common shares of Sirius XM as a result of $530 million in loan commitments made in 2009 which were subsequently repaid. Liberty Media Corporation is not likely to increase its ownership prior to March 2012, the third anniversary of the preferred stock transaction, due to internal revenue code rules governing ownership changes and NOL's. As of June 30, 2010, Liberty also owned an aggregate $374 million of notes (face value) issued by Sirius XM and XM Radio across several issues.

We expect to withdraw ratings on the 11.25% senior secured notes after they are fully tendered or redeemed, and, consistent with Moody's practice, we will withdraw ratings on the stub 9.75% senior unsecured notes due 2014 based on their de minimis amount.

For additional information on Sirius XM's ratings, please see the credit opinion on www.moodys.com.

The last rating action was on February 1, 2010, when Sirius XM's CFR was upgraded to Caa1 from Ca and its PDR was upgraded to B3 from Caa3.

Sirius XM's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (iii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside Sirius XM's core industry and believes Sirius XM's ratings are comparable to those of other issuers with similar credit risk.

The principal methodologies used in rating Sirius XM Radio Inc were Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Sirius XM Radio Inc. is headquartered in New York, New York and provides satellite radio services in the United States and Canada. The company offers a programming lineup of more than 130 channels of commercial-free music, sports, news, talk, entertainment, and traffic and weather. Sirius XM also provides music channels that offer music genres, ranging from rock, pop and hip-hop to country, dance, jazz, Latin, and classical; channels of sports; talk and entertainment channels; comedy channels; national, international, and financial news channels; and religious channels. Sirius XM had approximately 19.5 million subscribers as of June 30, 2010 and generated revenue of approximately $2.7 billion for the trailing 12 months ended June 30, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Carl Salas
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's Upgrades Sirius XM's CFR to B3, Assigns B3 Rating to Proposed Unsecured Notes
No Related Data.
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