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Let's Give Sirius XM Some Credit

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Standard & Poor's is placing Sirius XM Radio's (Nasdaq: SIRI  ) credit ratings on CreditWatch -- and that's a good thing.

The credit rating agency indicates that it may upgrade the company's debt rating, which would both validate the satellite radio provider's turnaround, and make it cheaper to borrow money in the future.

Surely you've seen this coming. Sirius XM's balance sheet isn't necessarily any better now than it was a year ago. It's still carrying roughly $3 billion in long-term debt. The real improvements at Sirius XM have come in the income and cash flow statements.

Sirius XM has now been profitable over the past four quarters. This alone is huge, since EBITDA gets plumper once the "E" earnings component actually turns positive. The satellite radio giant has also gained net subscribers during the past four quarters, getting back on the growth horse after it fell off during the first half of last year.

A credit upgrade doesn't mean that Sirius XM can issue corporate debt at an interest rate of 1% or lower, the way that IBM (NYSE: IBM  ) and Microsoft (Nasdaq: MSFT  ) did on three-year notes last month. However, it will give Sirius XM the ability to refinance at more attractive rates down the line. In other words, the "I" interest component is likely to refreshingly shrink.

There's not a lot that Sirius XM can do about the "D" and "A" part of EBITDA -- and it won't have much of a "T" tax burden, given the billions in tax-loss carryforwards in its back pocket.

In other words, Sirius XM's EBITDA snapshot is impressing Standard & Poor's. The healthy numbers should also help bottom-line profitability, if Sirius XM decides to refinance its debt before that obligation matures in a couple of years.

In another boost, XM isn't canning the Opie & Anthony show after all. I tuned in this morning to find callers congratulating Anthony Cumia for inking a new two-year deal. According to Orbitcast, the two anchors of XM's Virus 202 channel didn't sign until last night and early this morning. That's cutting it pretty close for a contract that expired yesterday. One can only hope that over on Sirius, Howard Stern won't put his fans through a similar wringer.

O&A reportedly signed for terms similar to their original contract, perhaps signaling Sirius XM's approach with Stern and other celebrity deals, including Oprah Winfrey and Martha Stewart Living Omnimedia's (NYSE: MSO  ) namesake star, when their deals come up.

Cost-containment on the content side, even as subscriber count and revenue generated per subscriber are on the rise? That sounds like the recipe for yet another credit-rating upgrade down the line.

Do you believe that Sirius XM's credit rating will continue to improve? Shares your thoughts in the comment box below.

Microsoft is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the stocks in this article. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 01, 2010, at 12:35 PM, DanCooper76 wrote:

    I too was happy to see O&A still on board. Sirius would have lost perhaps more than a few sub's if they were allowed to walk. Good to know Sirius is sticking with its premium content.

  • Report this Comment On October 01, 2010, at 1:21 PM, GeorgioG wrote:

    Wait untl they introduce the free option with advertising next year with sat 2.0. Game over radio!!!! Instantly #1 service in America..They are now on the Roku and I'm sure Xbox, Ps3, Apple TV are next in line...BAAAAAM

  • Report this Comment On October 01, 2010, at 3:03 PM, ItAintCool wrote:

    I'm sorry, but Oprah was a waste of $50 million by XM radio (which Siri had to absorb in the merger). She doesn't even appear on her own channel, except for one - 30 minute phone call per week and audio rebroadcasts of her TV show. Love him or hate him, Howard Stern earns his keep on SiriXM.

    I'm glad Mel & co. have upped their raised subscriber guidance to 20.1 million by year end, but we all know that Mel usually low-balls his figures so that he can beat the expectations. I wouldn't be surprised if we get 20.2 or even 20.3 by year-end.

    Hey Rick, I want to be cited for predicting Howard re-ups his contract for 3 years, 3 days a week at probably around 80-90 million per year (I mentioned this late last year when you first started your What Will Happen if Howard goes articles). But he'll get a percentage of every new internet subscription they sign, once they announce his channels will be available on the smart phone app.

  • Report this Comment On October 02, 2010, at 12:58 AM, DiscoFinance wrote:

    There is a new documentary movie out about the whole Sirius Xm story from the beginning to the near bankruptcy. I did not know satellite radio was invented by a TRANSGENDER WOMAN!!! That was Cool. DVD is everywhere but cheaper at the film site:

  • Report this Comment On October 03, 2010, at 5:33 PM, soundblaster16 wrote:

    Liberty media may acquire a majority position (gain control)

    of the company after March of next year, 2011, according

    to Sirius' most recent annual report. And they may do so

    simply by buying shares on the open market, I think... Unless, of course, I be the victim of mail

    fraud, and the annual report I got in the mail is

    fake. That said,...

    Liberty Media has a strange ownership structure. They

    have issued what they call Tracking Shares, which pieces

    of paper, unlike common shares, do not represent legal

    ownership in their company. So, who owns Liberty Media,

    if not the holders of their "tracking stock"?

    It is odd that neither the DOJ or the SEC has protested, or

    made illegal the selling (issuance) of trackiing shares.

    Suggest others research these questions, regardless of how

    profitable either Sirius or Liberty Media are.

    It is interesting that in the entire history of

    American Corporate Law, the merger between

    XM and Sirius took the longest, overseen by

    the DOJ. Frankly, the economics of XM looked

    far better than that of Sirius, who signed up

    Howard Stern. Thus making satellite radio in

    "family cars", unattractive. If either satellite

    company desired controversy, why did they

    not sign up Rush Limbaugh, or the Reverend

    Jeremiah Wright?

    Anyway, perhaps the FBI (now called 'Homeland

    Security') should investigate the possibility that

    an attractive (valuable) business was "high-jacked"

    away from the shareholders of XM and Sirius

    satellite companies? Who will ultimately own

    this enterprise 24 months from now, will own

    a "cash cow". The expression "cash cow" is not

    to be confused with the golden calf that Aaron

    pulled out of the fire, which calf nobody thought

    of selling to raise cash.

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