Sirius XM Stretches Out

In a move that will likely give Sirius XM Radio (Nasdaq: SIRI) even more breathing room, the satellite radio giant is hoping to sell $550 million of senior notes that would mature in 2015. The proceeds would be used to redeem all of the company's senior notes with a 9.625% coupon, which come due two years earlier.

That's a smart move. Interest rates are stable, and Sirius XM has garnered credit rating upgrades in recent months. Sirius XM is comfortably cash-flow positive -- so it's not as if the 2013 maturities were problematic -- but why chance it? The company is on firmer footing now, and if it can delay repayment milestones, or possibly lower its interest expense, it would be nuts to pass on the opportunity.

Sirius XM has enjoyed quite a year. It had to hand Liberty Capital (Nasdaq: LCAPA) 40% of the company to raise a similar amount of money 13 months ago. Now that the satellite radio star isn't much of a credit risk, it can raise money without humiliating visits to the pawnshop.

The company still faces delisting concerns, but its upbeat guidance should silence its loudest critics. Automakers remain Sirius XM's key source for subscriber growth, and healthy sales trends at Ford (NYSE: F) bode well on that front.

Is Sirius XM overvalued or undervalued? This question is practically irrelevant from bondholders' perspective. Potential buyers of the new debt senior notes will simply want to know whether Sirius XM will meet its obligations over the next five years, and that has little to do with daily stock-quote gyrations.

There will be challenges to the model along the way. Pandora is available to the growing number of Apple (Nasdaq: AAPL) iPhone, Research In Motion (Nasdaq: RIMM) BlackBerry, and Palm (Nasdaq: PALM) smartphone owners, and piping online tunes into automobiles seems to get easier with every passing model year. However, if consumers have no problem paying $80 or so a month for their smartphone plans, forking over another $15 for live satellite radio may not be much of a dealbreaker.

Momentum is clearly in Sirius XM's favor at the moment. It expects to add another 500,000 net subscribers to its rolls this year, improving on last year's impressive cash flows. Given the crummy interest rates being paid out by government bonds, CDs, and money market funds, holding out for a little more in the corporate bond market through Sirius XM should make $550 million in notes an easy sell.

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