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Rating Action:

Moody's assigns B1 to Sirius' proposed 7-yr senior notes, Ba3 CFR unchanged

Global Credit Research - 19 Sep 2013

$600 million of new debt rated

New York, September 19, 2013 -- Moody's Investors Service ("Moody's") assigned B1 to Sirius XM Radio Inc.'s ("Sirius") proposed $600 million senior notes. Net proceeds from the new notes plus some cash on hand are expected to refinance the existing 7.625% senior notes due 2018. All other ratings are unchanged including the company's Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating as well as B1 instrument ratings on the existing senior notes. The B1 ratings on the proposed and existing senior notes reflect their effective subordination to the unrated secured revolver. The stable rating outlook is unchanged.

Assigned:

..Issuer: Sirius XM Radio Inc.

......NEW $600 million sr notes: Assigned B1, LGD4 -- 60%

Unchanged:

..Issuer: Sirius XM Radio Inc.

....Corporate Family Rating: Unchanged Ba3

....Probability of Default Rating: Unchanged Ba3-PD

...... 4.25% sr notes due 2020 ($500 million outstanding): Unchanged B1, LGD4 -- 60%

...... 5.75% sr notes due 2021 ($600 million outstanding): Unchanged B1, LGD4 -- 60%

...... 5.25% sr notes due 2022 ($400 million outstanding): Unchanged B1, LGD4 -- 60%

...... 4.625% sr notes due 2023 ($500 million outstanding): Unchanged B1, LGD4 -- 60%

......Speculative Grade Liquidity Rating: Unchanged SGL -- 1

Outlook:

..Issuer: Sirius XM Radio Inc.

...... Outlook is Stable

Unchanged but to be withdrawn upon full redemption or completion of the tender

..Issuer: Sirius XM Radio Inc.

...... 7.625% sr notes due 2018 ($540 million outstanding): Unchanged B1, LGD4 -- 60%

RATINGS RATIONALE

Sirius' Ba3 corporate family rating reflects moderate pro forma leverage (estimated 3.3x debt-to-EBITDA as of June 30, 2013, including Moody's standard adjustments) and expectations for free cash flow before dividends of more than $800 million or 23% of debt balances over the next 12 months. Despite the increase in debt-to-EBITDA from 2.8x as of March 31, 2013 (including Moody's standard adjustments), leverage ratios along with other credit metrics remain within the Ba3 category. Since the beginning of 2013, the company increased funded debt balances by $0.8 billion and repurchased roughly $1.3 billion of common stock on the open market under its $2 billion common share repurchase program. Moody's expects the company to fund additional share repurchases with revolver advances and operating cash flow while maintaining leverage and coverage ratios within the Ba3 category given management's 3.5x target for reported leverage. The Ba3 CFR reflects Moody's expectations that, despite the potential for higher debt balances to partially fund distributions, the self-pay subscriber base and operating performance of Sirius will be supported by continued growth in the delivery of light vehicles in the U.S. over the next 12 months and management will keep leverage within its target range.

Sirius continues to position itself for enhanced financial flexibility. As proposed, the new notes are covenant-lite with no limitations on restricted payments nor debt issuances which mirrors the covenant-lite structure for the $1.6 billion of notes issued earlier this year. In contrast, the existing 5.25% notes due 2022 provide a 3.50x leverage ratio incurrence test for restricted payments and a 6.0x leverage ratio test for additional indebtedness. Furthermore, management has stated that it is looking at forming a new holding company in the near term.

Looking forward, Moody's expects U.S. deliveries of light vehicles in 2013 to climb to 15.75 million units which is higher than our 15.25 million unit estimate at the beginning of this year. Growth in new vehicle deliveries and modest economic recovery should support net self-pay subscriber additions from the current 20.3 million over the next 12 months. Moody's expects EBITDA in 2013 to increase to $1.1 billion (including Moody' standard adjustments) accompanied by reduced capital spending in the years leading up to the next satellite launch cycle. Continued growth in the subscriber base will drive EBITDA increases and could better position the company to fund the next cycle of significant expenditures related to construction and launching of replacement satellites beginning as early as 2016 so long as share repurchases and dividends are maintained within prudent levels. Longer term, ratings remain constrained as Sirius will increasingly share the dashboard of new vehicles with OEM installed devices providing competitive advertising-supported media, including internet radio services. Moody's expects greater competition will also lead to higher programming costs adding to scheduled increases in royalty payments paid by Sirius on behalf of performing artist and recorded music companies. These higher costs may not be entirely offset by increases in consumer subscription rates.

In August 2013, the company announced an agreement to acquire the connected vehicle business of Agero, Inc. ("Agero") for $530 million. This transaction is expected to close by the end of 2013 subject to regulatory approvals and is not expected to have a material negative impact on EBITDA, free cash flow or capital spending. The Agero business provides location-based services through two-way wireless connectivity, including safety, security, convenience, maintenance and data services as well as remote vehicle diagnostics. Management expects Agero will become a restricted subsidiary and guarantor.

The stable outlook reflects Moody's view that Sirius will increase its self-pay subscriber base reflecting good demand for new vehicles in the U.S. and resulting in higher revenue and EBITDA. The outlook incorporates Sirius maintaining good liquidity, even after the Agero acquisition as well as during periods of satellite construction, and the likelihood of share repurchases or additional dividends being funded from revolver advances, new debt issuances, or free cash flow. The outlook does not incorporate highly leveraging transactions or a level of shareholder distributions that would negatively impact liquidity or sustain debt-to-EBITDA ratios above 3.75x (including Moody's standard adjustments). The stable outlook assumes that changes in the corporate structure, including a potential tax free spin-off, 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 3.75x (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 or due to functional problems with satellite operations. A weakening of Sirius' liquidity position below expected levels as a result of dividends, share repurchases, capital spending, or additional acquisitions 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 below 2.75x (including Moody's standard adjustments) and free cash flow-to-debt ratios above 20% even during periods of satellite construction.

The principal methodology used in this rating 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 creates and broadcasts commercial-free music; premier sports talk and live events; comedy; news; exclusive talk and entertainment; and comprehensive Latin music, sports and talk programming. Sirius XM services are available in vehicles from major car companies in the U.S., and programming is also available online as well as through applications for smartphones and other connected devices. The company holds a 37.7% interest in Sirius XM Canada which has more than 2 million subscribers. Sirius is publicly traded and a controlled company of Liberty Media Corporation which owns over 50% of common shares and controls a majority of the board of directors. Sirius reported 25.1 million subscribers, including 20.3 million self-pay subscribers, at the end of June 2013 and generated revenue of $3.6 billion for the trailing 12 months ended June 30, 2013.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 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 rating action, and whose ratings may change as a result of this 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.

Carl Salas
VP - Senior Credit Officer
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 assigns B1 to Sirius' proposed 7-yr senior notes, Ba3 CFR unchanged
No Related Data.

 

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