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I AGREE
18 Jun 2019
New York, June 18, 2019 -- Moody's Investors Service ("Moody's") assigned a Ba3
rating to Sirius XM Radio Inc.'s ("Sirius XM"
or the "company") proposed senior unsecured notes offering
due 2024. Sirius XM's Ba3 Corporate Family Rating (CFR) and
stable outlook remain unchanged.
The offering proceeds are expected to be used to prepay a portion of the
$1.5 billion outstanding 6% senior notes due 2024
(the "2024 Notes"). This proposed raise follows the
issuance in early June of $1.25 billion 5.5%
senior notes due 2029 (the "2029 Notes"), in which the
proceeds were used to repay outstanding revolver borrowings.
Following is a summary of today's rating action:
Assignments:
..Issuer: Sirius XM Radio Inc.
....Gtd Senior Unsecured Global Notes due
2024, Assigned Ba3 (LGD4)
The assigned ratings are subject to review of final documentation and
no material change in the size, terms and conditions of the transaction
as advised to Moody's.
RATINGS RATIONALE
The transaction is leverage and credit neutral since Moody's expects
Sirius XM to use the offering proceeds to prepay a portion of the 2024
Notes. The company's Ba3 CFR is buttressed by a moderate
leverage profile (3.6x total debt to EBITDA, Moody's
adjusted as of 31 March 2019 pro forma for the recent 2029 Notes raise),
high EBITDA margins in the 30%-35% area (Moody's
adjusted, pro forma for the Pandora acquisition) and free cash flow
conversion of roughly 60%. The rating 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
deliveries in 2019 (-2.9% yoy decline) and 16.7
million in 2020, and increasing penetration (currently around 44%)
in the used car segment. The Ba3 rating also considers the revenue
diversification and scale benefits from the Pandora acquisition,
which helps Sirius XM extend its presence to the 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 through additional service offerings to facilitate
higher conversions and up-selling of listeners to paid subscribers.
The Ba3 rating is constrained by Sirius XM's historically aggressive
financial policy, which includes funding sizable share repurchases
with debt. Moody's expects Sirius XM will continue to use debt
and free cash flow 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 at the Ba3 level.
Further weighing on the rating is the company's majority ownership
by Liberty Media Corporation, which poses event risk given Liberty
Media's track record for M&A and shareholder-friendly transactions.
The rating also reflects the high monthly churn rate (roughly 1.7%-1.9%)
and slowing subscriber and revenue growth in Sirius XM's core vehicle
market at a time when rising capex levels (for satellite replacements)
and quarterly dividends will increasingly consume free cash flow generation.
Outlook
The stable outlook reflects Moody's view that Sirius XM will increase
its self-pay subscriber base due to new vehicle sales in excess
of 16.5 million units and growing availability of satellite radio
in used cars both of which will contribute to higher revenue and EBITDA.
The outlook incorporates Moody's expectation that Sirius XM will
maintain very good liquidity, even during periods of satellite construction,
potentially increase leverage above current levels consistent with management's
4x as-reported leverage target, and share repurchases and/or
dividends will likely be funded from revolver advances, new debt
issuance and/or operating cash flow.
Factors That Could Lead to an Upgrade
> 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.
Factors That Could Lead to a Downgrade
> Moody's expects total debt to EBITDA will be sustained above 4.5x
(including Moody's standard adjustments).
> Free cash flow 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 liquidity below expected levels as a result of share
repurchases, dividends, capital spending, or more 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 FM-5, SIRIUS
FM-6, XM-3, XM-4 and XM-5).
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 every major automobile manufacturer in the US, and programming
is also available online as well as through applications for smartphones
and other internet connected devices. Sirius XM reported 34.2
million subscribers at the end of March 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 66.0 million active users and 6.9 million subscribers.
Sirius XM is publicly traded and a controlled company of Liberty Media
Corporation, which owns approximately 68% of its common shares.
Revenue totaled $6.14 billion for the twelve months ended
31 March 2019 ($6.3 billion with the inclusion of Pandora
Q1 2019 revenue).
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 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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