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Rating Action:

Moody's rates Sirius XM's new senior unsecured notes Ba3; outlook stable

26 Jun 2017

Approximately $1.5 billion of new debt rated

New York, June 26, 2017 -- Moody's Investors Service ("Moody's") assigned a Ba3 rating to Sirius XM Radio Inc.'s ("Sirius XM" or the "company") proposed $1.5 billion senior unsecured notes consisting of a $500 million 5-year tranche and $1 billion 10-year tranche. Net proceeds from the issuance will be used to retire the existing $500 million 4.25% senior unsecured notes due May 2020 (which are currently callable) and $600 million 5.75% senior unsecured notes due 2021 (callable in August), and repay approximately $400 million of outstanding borrowings under the $1.75 billion revolving credit facility (RCF). Moody's views the transaction favorably given the extension of the debt maturity structure. The rating outlook is stable.

Ratings Assigned:

..Issuer: Sirius XM Radio Inc.

$500 Million Senior Unsecured Notes due 2022 -- Ba3 (LGD-4)

$1.0 Billion Senior Unsecured Notes due 2027 -- Ba3 (LGD-4)

The assigned ratings are subject to review of final documentation and no material change to the size, terms and conditions of the transaction as advised to Moody's. Moody's will withdraw the Ba3 instrument ratings on the 4.25% notes and 5.75% notes upon their full repayment.

RATINGS RATIONALE

The debt offering is credit neutral given that proceeds will be used to retire an equivalent amount of existing debt and we expect pro forma leverage to remain at approximately 3.65x total debt to EBITDA (as of 3/31/17, including Moody's adjustments), which is below the 4.5x downgrade trigger.

Sirius XM's Ba3 Corporate Family Rating (CFR) embeds the company's moderate leverage profile counterbalanced by its aggressive financial policies. While the company benefits from high EBITDA margins in the 35% range (including Moody's adjustments) with more than 70% free cash flow conversion, the bulk of excess cash has been diverted to share buybacks, a credit negative that restrains the rating. Majority ownership by Liberty Media Corporation also weighs on the rating and poses considerable event risk given Liberty Media's track record for acquisitions and shareholder-friendly transactions. Since December 2012, the company increased net debt balances by $3.6 billion to support $8.3 billion of stock buybacks under the current $10 billion share repurchase program, of which $1.7 billion remains available. Despite the increase in total debt to EBITDA from 2.8x (Moody's adjusted as of 3/31/13), financial leverage ratios along with other credit metrics have remained well-positioned at the Ba3 rating level; however, ratings are constrained by Moody's expectation that Sirius XM will continue to fund share repurchases or engage in M&A activity by expanding debt. Further, we expect the pace of revenue growth to be muted reflecting smaller increases in US new automobile deliveries and by the 1.8%-1.9% monthly churn on a larger self-pay subscriber base.

Looking forward, free cash flow growth will be restrained by higher interest payments on growing debt balances, the new quarterly dividend and spending on satellite replacements, which began in the second half of last year and will continue into 2018, followed by increased tax payments when NOLs are exhausted sometime in 2019. We expect 2017 free cash flow to be in a range of $1.1-$1.3 billion compared to $1.47 billion produced in 2016. Despite the likelihood for higher debt balances, we believe credit metrics will remain within the Ba3 category as the self-pay subscriber base and operating performance of Sirius XM will be supported over the next 12-18 months by deliveries of new light vehicles sustained at roughly 17.4 million units and improved used car segment penetration.

Liquidity is very good (SGL-1) with availability under the $1.75 billion RCF. At the end of the March quarter, $530 million of borrowings were outstanding on the RCF. However, in recent months Sirius XM drew further under the facility to fund several cash outlays including the: (i) $172.5 million first installment payment to purchase Pandora's Series A convertible preferred stock in early June; (ii) recapitalization of Sirius XM Canada in May, which required a $150 million cash contribution; (iii) $115 million acquisition of Automatic Labs in April; and (iv) ongoing share repurchase program. Following repayment of RCF borrowings, we expect approximately $600 million to remain outstanding on the revolver.

Rating Outlook

The stable rating outlook reflects Moody's view that Sirius XM will increase its self-pay subscriber base due to sustained demand for new vehicles in the US and growing availability of satellite radio in used cars both of which will contribute to higher revenue and EBITDA. The outlook incorporates our 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. The outlook does not incorporate leveraging transactions or a level of shareholder distributions that would negatively impact liquidity or sustain total debt to EBITDA above 4.5x (Moody's adjusted).

What Could Change the Rating -- Up

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. A track record for sustaining total debt to EBITDA below 3.5x (Moody's adjusted) and free cash flow to debt above 12% (Moody's adjusted) even during periods of satellite construction could also lead to higher ratings.

What Could Change the Rating -- Down

Ratings could be downgraded if Moody's expects total debt to EBITDA will be sustained above 4.5x (Moody's adjusted) or free cash flow generation were to fall 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 additional acquisitions could also result in a downgrade.

Please see the credit opinion on www.moodys.com for additional information on Sirius XM Radio Inc..

The principal methodology used in these ratings 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 car company in the US, and programming is also available online as well as through applications for smartphones and other internet connected devices. Sirius XM reported 31.6 million subscribers, including 26.2 million self-pay subscribers, and reported $5.1 billion in LTM revenue as of 31 March 2017.

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
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

John Diaz
MD - Corporate Finance
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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