by Demian Russian

Murray Arenson, BGB Securities

This week, on the heels of Sirius XM (NASDAQ:SIRI) issuing $800 million in new Senior Notes to refinance debt, BGB Securities Media Analyst, Murray Arenson, has issued an updated equity report. Arenson initiated coverage of Sirius XM at BGB Securities just last week — with a BUY rating and a $1.15 price target. In his initial report, he noted a rebounding OEM sector, penetration into the pre-owned auto market, royalty pass-throughs, merger related synergies and an improving balance sheet.

In his updated report, Arenson views the recent Senior Note offering and extension of maturities as a big positive to the company. The $800 million 8.75% Senior Notes due 2015 will be used to redeem the company’s $500 million 9 5/8 % Senior Notes due 2013 and to prepay it’s $244 million senior secured term loan, which has a variable rate (2.56% currently), that matures in 2012. Arenson views the refinancing of this particular debt as a big benefit to the company, because it clears away restrictive debt covenants and opens up the path for a merger of the Sirius and XM operating businesses.

Arenson notes that the $500 million 9 5/8% Senior Notes, which are subject to a 4% call premium, carried a higher interest rate and a restrictive covenant, “that has effectively precluded a merger of the Sirius and XM operating companies.” The restrictive covenant carried a $500 million limit on senior secured debt. Sirius and XM both had senior secured debt in excess of $500 million before this refinancing. Arenson estimates that the refinancing of the $500 million Senior Notes will save the company $4.4 million annually.

“The ($244 million) term loan also had a covenant that directly prohibited the merger of the Sirius and XM operating companies”, explains Arenson. While noting the higher interest rate to this particular portion of the refinancing, Arenson views the benefit of extending the maturity to 2015 and the removing of the restrictive covenant — which he describes as “a hurdle to combining the operating companies.” Arenson estimates that the incremental annual interest expense associated with this particular debt refinancing is around $15 million a year. Arenson views this added interest expense as worth the cost, for the current and future benefits to the company.

“The maturity profile is improved”, says Arenson. He sees the combination of the two operating companies reducing accounting costs and bringing annual savings to Sirius XM. “Perhaps more importantly, these transactions could lead to a simplified corporate structure, eliminating tactical and strategic complexities for the management team”, Arenson states.

BGB Securities Media Analyst, Murray Arenson will be discussing Sirius XM in a live, exclusive interview on Satwaves Radio tonight (March 17th) at 9:00pm Eastern. This will be Mr. Arenson’s second appearance as a guest on Satwaves Radio. He was previously a guest last November, while an analyst at Janco Partners.

Satwaves Radio Show Number 33 – Live Tonight at 9:00PM Eastern

Satwaves Radio can be heard live every Wednesday night at 9:00PM Eastern. Previous episodes of the show can also be streamed and downloaded as an Mp3 file or via iTunes. Further information about Satwaves Radio can be found at the Satwaves Radio Home Page.

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