Sirius XM ending the year on a high note


The news lately has been nothing but good for Sirius XM. The satellite radio company passed 20 million subscribers, renewed its top star – Howard Stern – and, most recently, got its credit rating boosted by Standard & Poor’s.

Wall Street has been pretty bullish on Sirius XM in recent months, pushing its stock back above a buck in September – negating any issue with Nasdaq’s minimum price rule – and to a then-year-to-date-high of $1.27 when the 20-millionth subscriber was announced. Since then the stock has been as high as $1.57, but has pulled back a little of late.

S&P took a look at just how much Sirius XM had improved its financial picture and raised its corporate credit rating on the company to BB- from B+. A double-B rating is still below investment grade, which begins at triple-B, but is still pretty good for a company that was on the brink of a bankruptcy filing less than two years ago. S&P said the ratings outlook is stable.

“The action reflects the company’s improving operating performance, declining debt leverage, and the prospects for continued improvement in credit measures for full-year 2010 and 2011,” explained Standard & Poor’s credit analyst Hal Diamond.

Sirius XM had total debt outstanding of $3 billion as of September 30, 2010.

“The ‘BB-‘ rating on Sirius XM reflects our expectation that debt leverage will remain relatively high and that the business will remain capital intensive through the end of 2011. For these reasons, we view Sirius XM’s financial profile as aggressive. We assess the company’s business risk profile as fair, reflecting its dependence on U.S. automotive sales and consumer discretionary spending for growth, but also its longer-term vulnerability to competition from alternative media. The company’s position as the only U.S. satellite radio operator, integration-related operating synergies, and cost savings arising from the 2008 acquisition of XM Satellite Radio Holdings Inc. are modest positives that do not offset these risks,” said the S&P analysis.

Despite the cost (no, the exact amount isn’t spelled out), S&P endorsed the Stern deal. “On Dec. 9, 2010, the company renewed its five-year agreement with radio talk show host Howard Stern through the end of 2015. Despite onerous contract costs, we believe Stern has been important to the growth of the service due to his loyal fan base and exclusive content, which is not available on terrestrial radio. We believe that subscriber churn would increase, potentially dramatically, should he have decided not to renew his contract,” S&P said of the renewal of “The King of All Media.”

RBR-TVBR observation: If Howard Stern is the King of All Media, then Mel Karmazin is the King of Wall Street. He did the heavy lifting in 2009, pulling Sirius XM back from the brink of a financial abyss, and delivered the payoff for the company’s shareholders in 2010. Renewing first the NFL and then Stern let Mel check off his “to do” list for 2010. Hand that man an eggnog. He’s earned it.