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Related Issuers
Rating Action:

Moody's affirms Sirius XM's Ba3 ratings; outlook stable

10 Dec 2019

Approximately $9.5 bilion of rated debt impacted

New York, December 10, 2019 -- Moody's Investors Service ("Moody's") affirmed Sirius XM Radio Inc.'s ("Sirius XM" or the "company") existing ratings, including its Ba3 Corporate Family Rating ("CFR"), Ba3-PD Probability of Default Rating ("PDR") and its Ba3 senior unsecured ratings. The company's Speculative Grade Liquidity Rating (SGL) was maintained at SGL-1. The outlook remains stable.

Following is a summary of today's rating action:

Affirmations:

..Issuer: Sirius XM Radio Inc.

.... Corporate Family Rating, Affirmed Ba3

.... Probability of Default Rating, Affirmed Ba3-PD

....Senior Unsecured Notes, Affirmed Ba3 (LGD4)

Maintained:

..Issuer: Sirius XM Radio Inc.

....Speculative Grade Liquidity Rating, Maintained at SGL-1

Outlook Actions:

..Issuer: Sirius XM Radio Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

Sirius XM's Ba3 CFR reflects its moderate leverage profile (3.7x total debt to EBITDA, Moody's adjusted at 30 September 2019), high EBITDA margins in the 30%-35% area (Moody's adjusted, pro forma for Pandora) and 60% free cash flow (FCF) conversion. The credit profile is further supported by Sirius XM's sizable self-pay satellite radio subscriber base, unique mix of content and curated channels, Moody's forecast for domestic new light vehicle volume of 16.8 million units in 2019 and 16.7 million in 2020, and increasing penetration in the used car segment. Sirius XM derives revenue diversification and scale benefits from the Pandora Media, LLC ("Pandora") acquisition, which helps extend its presence to in-home and mobile entertainment markets in North America, and enables the creation of new curated content. As the leading ad-supported digital audio platform in the US, Pandora gives Sirius XM more ways to monetize the trial user funnel.

The rating is constrained by Sirius XM's historically aggressive financial policy, which includes funding sizable share repurchases with debt and the entirety of free cash flow. Moody's expects Sirius XM will continue to use debt and FCF to fund buybacks or engage in M&A activity. Despite higher debt levels, financial leverage ratios along with other credit metrics have remained well-positioned for the rating category. Other challenges include the high monthly churn rate and slowing subscriber and revenue growth in Sirius XM's core vehicle market at a time when rising capex levels and quarterly dividends will increasingly consume free cash flow generation.

Further weighing on the rating is the heightened governance risk from the company's majority ownership by Liberty Media Corporation. Liberty Media Corporation's control poses event risk given Liberty's track record for M&A and shareholder-friendly transactions. Sirius XM also faces certain risks brought about by social trends, including the accelerating move to digital music streaming services and changing demographics.

Moody's expects Sirius XM to maintain very good liquidity provided by its $1.75 billion unrated senior secured revolver due 2023 ($65 million outstanding at 30 September 2019) and FCF in the range of $1.6 billion to $1.8 billion in 2020. Cash balances remain adequate totaling approximately $79 million at 30 September 2019. Share repurchases and/or dividends will likely be funded from revolver advances, new debt issuance and/or operating cash flow.

The stable rating outlook reflects Moody's view that Sirius XM will increase its self-pay subscriber base due to new vehicle sales and growing availability of satellite radio in used cars, both of which will contribute to higher revenue and EBITDA. Moody's also expects that Sirius XM will maintain very good liquidity, even during periods of satellite construction and potentially higher leverage levels consistent with management's 4x as-reported target.

Sirius XM's ratings could be upgraded if:

> Management demonstrates a commitment to balance debt holder returns with those of its shareholders, which would include sizing share repurchases within annual free cash flow generation and limiting debt-funded buybacks.

> Assurances that Sirius XM will operate in a financially prudent manner consistent with a higher rating.

> A track record for sustaining total debt to EBITDA below 3.5x (including Moody's standard adjustments) and free cash flow to debt above 12% (Moody's adjusted) even during periods of satellite construction.

The company's ratings could be downgraded if:

> Moody's expects total debt to EBITDA will be sustained above 4.5x (including Moody's standard adjustments).

> FCF generation falls below targeted levels as a result of subscriber losses due to a potentially weak economy or customer migration to competing media services or due to functional problems with satellite operations.

> A weakening of Sirius XM's liquidity below expected levels as a result of share repurchases, dividends, capital spending, or additional acquisitions.

The principal methodology used in this rating was Media Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in New York, NY, Sirius XM Radio Inc., is a wholly-owned operating subsidiary of Sirius XM Holdings Inc., which provides satellite radio services in the United States and Canada through a fleet of five owned satellites. Sirius XM reported 34.6 million subscribers at the end of September 2019. The company holds a 70% equity interest and 33% voting interest in Sirius XM Canada and owns 100% of Pandora Media, LLC., which has 63.1 million active users and 6.3 million subscribers. Sirius XM is publicly traded and a controlled company of Liberty Media Corporation, which owns approximately 71% of its common shares. Revenue totaled $7.2 billion for the twelve months ended 30 September 2019 ($7.3 billion with the inclusion of Pandora Q1 2019 revenue).

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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 ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gregory A. Fraser, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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