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Announcement:

Moody's changes Sirius' rating outlook to positive

31 May 2012

Approximately $2.5 billion of rated debt affected

New York, May 31, 2012 -- Moody's Investors Service changed Sirius XM Radio Inc.'s ("Sirius") rating outlook to positive from stable and affirmed the company's existing ratings including its B2 Corporate Family Rating (CFR), B1 Probability of Default Rating (PDR), debt instrument ratings, and SGL -- 2 Speculative Grade Liquidity (SGL) rating. The outlook change reflects the growing subscriber base as well as the improved operating performance and credit metrics. Loss given default point estimates were updated to reflect the current debt mix.

Affirmed:

..Issuer: Sirius XM Radio Inc.

..Corporate Family Rating: Affirmed B2

..Probability of Default Rating: Affirmed B1

.9.75% Sr Secured Notes due 2015 ($224 million outstanding): Affirmed Ba2, LGD2 -- 10%

.8.75% Sr Notes due 2015 ($800 million outstanding): Affirmed B2 (point estimates updated to LGD4 -- 63% from LGD4 -- 64%)

.7.625% Sr Notes due 2018 ($700 million outstanding): Affirmed B2 (point estimates updated to LGD4 -- 63% from LGD4 -- 64%)

.13% Sr Notes due 2013 ($744 million outstanding): Affirmed B2 (point estimates updated to LGD4 -- 63% from LGD4 -- 64%)

....Speculative Grade Liquidity (SGL) Rating: SGL -- 2

Outlook Actions:

....Outlook, Changed to Positive from Stable

SUMMARY RATING RATIONALE

Sirius' B2 corporate family rating reflects the company's moderately high leverage of 4.4x debt-to-EBITDA as of March 31, 2012 (including Moody's standard adjustments), which should improve to less than 4.0x by FYE2012 due to EBITDA growth in combination with debt repayments. Based on Moody's forecasts incorporating management's recently raised guidance for subscriber growth in 2012, we expect free cash flow will increase to more than $550 million in 2012 (greater than 15% of debt balances) driven by net subscriber additions as the economy and automotive sales recover accompanied by reduced capital spending in the years leading up to the next satellite launch cycle. Subscribers are expected to increase to 23.4 million by the end of 2012 compared to 18.8 million at year end 2009 despite high churn in the subscriber base and increasing competition from advertising supported internet radio services (Pandora) and programs (iHeartRadio, Spotify) delivered on hand held devices and automotive OEM-factory installed peripheral equipment. The absence of significant capital spending on satellite construction boosts free cash flow generation in 2012 compared to 2009 and 2010, and we expect capital spending to remain at reduced levels through the end of 2015. Sirius competes for consumers against a variety of entertainment options, many of which are free, and sustaining the subscriber base requires significant investments in programming and marketing. The 2008 merger of Sirius Satellite Radio Inc. and XM Satellite Radio Inc. rationalized these investments as programming contracts were renegotiated without the competitive pressure of one company bidding against the other. Moody's believes most of the initial gains related to lower programming expense have been realized.

Satellite-based service providers have significant and lumpy capital outlays to replace satellites once their useful lives end. Although Sirius' debt-to-EBITDA leverage is moderately high, cash balances have accumulated to over $730 million, and we believe the company is positioned to further reduce debt balances and refinance 2013 debt maturities at lower rates. We expect heightened competition from advertising supported services and from much lower cost Internet radio offerings; however, Sirius' ability to generate good free cash flow provides for continued debt reduction. We believe Sirius needs to reduce leverage from current levels to provide financial cushion for the eventual funding of the next cycle of satellite replacements as well as to continue investing in programming, marketing, and introducing new services to maintain its market share against heightened competition.

The positive outlook incorporates our 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 consistent with a higher rating and 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), all of which position the company to fund the next cycle of significant expenditures related to construction and launching replacement satellites beginning as early as 2016. Given that Sirius equipment is installed in the majority of new automobiles being sold in the U.S., more new vehicles enhance the potential subscriber base. Under the base case scenario of Moody's analysts, annual sales of new light vehicles are expected to increase to 14 million units in 2012, representing an increase of 9.3% over 2011 levels, followed by an incremental increase in vehicle sales to an estimated at 14.5 million units in 2013. Longer term, we believe there will be heightened competition from ad supported media services providing attractive offerings at relatively little monetary cost to the consumer versus Sirius' product offerings which are subscription based. The outlook also incorporates management being proactive in addressing 2013 debt maturities and maintaining good liquidity, even factoring in the potential repayment of the secured 9.75% notes ($244 million outstanding) in the second half of 2012 and the potential for dividends as the company approaches its debt-to-EBITDA targets. The outlook does not incorporate leveraging transactions or significant shareholder distributions that would negatively impact debt-to-EBITDA ratios or liquidity.

A downgrade of ratings is not likely given the positive outlook; however, ratings could be downgraded if free cash flow generation falls below expectations 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 as a result of dividends, share repurchases, or a significant acquisition as well as the inability to access capital markets or generate sufficient cash flow to proactively address 2013 debt maturities could also lead to a downgrade. Moody's would consider an upgrade of ratings upon disclosure or completion of the company's eventual corporate structure including a controlling position by its largest shareholder, Liberty Media, or a potential tax free spin-off. We would also need confirmation that liquidity will remain good and the company's debt profile will be in line with management's 3.0x leverage target after taking into account potential shareholder distributions. Event risk related to developments in the final ownership structure creates uncertainty. Accordingly, Moody's needs to be assured that changes in the corporate structure will not adversely impact the company's operating strategy, credit metrics, or financial policies. Management would also need to provide assurances that operating and financial policies will be consistent with the higher rating including a commitment to balance the interest of debt holders with shareholder returns.

Recent Events/Other

In the fiscal quarter ended March 31, 2012, Sirius reduced debt balances by $67 million (face value) with the purchase of $32.6 million of the 9.75% notes due 2015 and the purchase of $34.3 million of 13% notes due 2013. Liberty Media Corporation (B1 CFR) holds preferred stock that is convertible into approximately 40% of common shares of Sirius as a result of $530 million in loan commitments made in 2009 which were subsequently repaid or extinguished. As anticipated, with the passage of the 3-year anniversary since the preferred stock transaction, Liberty Media Corporation entered into agreements that would increase its ownership of Sirius to 46.2%. Although uncertain, Moody's believes Liberty Media is likely to increase its position further to reach at least 50% ownership interest and potentially add to its board seat representation with the intent of being deemed by the FCC as having control of Sirius XM prior to executing a widely anticipated tax free spin off of Sirius XM.

As of March 31, 2012, Liberty also owned an aggregate $337 million of notes (face value) issued by Sirius across several issues; these debt holdings are unchanged from the prior year. At year end 2011, Sirius had approximately $7.8 billion of NOL's available to offset future taxable income compared to $8.1 billion at the end of 2010. We expect a continued reduction in the NOL balance as they are used to shield taxable income.

Sirius XM Radio Inc. is headquartered in New York, NY and 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 22.3 million subscribers as of March 31, 2012 and generated revenue of $3.1 billion for the trailing 12 months ended March 31, 2012.

The principal methodology used in this rating was Global Broadcast and Advertising Related published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

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 changes Sirius' rating outlook to positive
No Related Data.
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