Sirius XM Radio Inc (SIRI) Debt Restriction Could Prevent Buyback

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Sirius XM Radio Inc (SIRI) Debt Restriction Could Prevent Buyback

Sirius XM Radio Inc (NASDAQ:SIRI) announced Thursday a $2 billion share repurchase program and a $0.05/share special dividend, payable 12/28/12.  At $0.05 per share, the cash dividend is expected to total $325 million. For the repurchase, the company did not reveal a detailed plan, but a report from RBC Capital Markets believes “their intention is to utilize it in the next 12-24 months”.

CFO David Frear said at an investor conference this week “to the extent that we don’t have anything to buy” a stock repurchase and/or dividend payment could be “the best thing that I think we can do”, adding that he’d “get back to you soon”.

Liberty Media Corp (Capital) (NASDAQ:LMCA) will be part of the repurchase program, by selling its own shares to Sirius XM Radio Inc (NASDAQ:SIRI), leaving relative ownership unaffected. As per the report, the “company recently upped its “dry powder” by entering into an undrawn $1.25 billion revolver”, the news though positive, was already expected. The move, however, was a touch earlier than expected.

“The combined announcement reflects the board’s desire to return value to stockholders and its confidence in the long-term growth prospects of the company’s business,” said Sirius, parent of the SiriusXM satellite radio service.

The report from RBC believes that some inherent restrictions in outstanding debt may obstruct SIRI’s repurchase program. The firm’s “7.625% and 8.75% notes restrict total cumulative aggregate capital returns to less than aggregate “operating cash flow” minus a multiple of interest expense”, says the report. Given such hurdles, the report holds that Sirius XM Radio Inc (NASDAQ:SIRI) will be able to complete its entire share buyback authorization by the first half of 2014. Also, to achieve $400 million in a repurchase quarterly, Sirius will have to figure out a way to overcome the payout restrictions placed on it through the ‘7.625% and 8.75% notes’.

Sirius XM Radio Inc (SIRI) Debt Restriction Could Prevent Buyback

The RBC report raised its 2013 net subscriber additions to 1,235k from 1,152k earlier, along with SAAR expectation to 15.1 million from 14.8 million earlier.

Sirius Satellite Radio provides more than 120 audio channels of music, news, traffic, and weather, and has factory install relationships with Ford Motor Company (NYSE:F) and Chrysler. On July 29, 2008, the company completed its merger with XM Satellite Radio, which provides more than 120 audio channels and has factory activation relationships with General Motors Company (NYSE:GM) and Honda Motor Co Ltd (NYSE:HMC). At the end of 4Q11, the merged company had a total of 21.9mm subscribers.



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