Sirius XM Is a Smart Cookie

A panhandling company isn't typically a rallying point, but Sirius XM Radio (Nasdaq: SIRI) shareholders have every right to cheer on new debt after the satellite radio provider announced last night that it had completed an offering of $700 million in new senior notes.

Let's see what has happened since the announcement.

• Lazard Capital analyst Barton Crockett is bumping his price target $0.30 higher to $1.65 a share -- reiterating his "buy" rating.
• Moody's upgraded the company's debt.
• Shares of Sirius XM opened higher this morning, despite a BGB Securities downgrade and an SEC filing indicating that several states are launching an investigation into the company's consumer practices.

What might you be missing? Well, it's important to point out that the $700 million debt offering -- originally slated to be just a $550 million deal -- was done primarily to buy back notes that are due in three years. Sirius XM is buying itself five years of repayment time, but that's not all. The new debt bears interest at a rate of 7.625%. The 2013 senior secured notes are yielding 11.25%.

Yes, Sirius XM is gaining time and interest expense money in the operation. Nice.

BGB's downgrade is based on valuation, but Lazard's rosier price outlook is the result of Sirius XM's successfully pushing out its debt obligations. Lazard's Crockett claims that the company can now cover the next few years of debt maturities out of its improving cash flow.

The company's model should continue to improve, as it has added nearly 1.5 million net new subscribers over the past five quarters. Closing in on 20 million subscribers, Sirius XM is the country's second-largest subscriber-based entertainment company. Cable giant Comcast (Nasdaq: CMCSA) (Nasdaq: CMCSK) is the top dog, but its video customers have been declining over the past year. Market darling Netflix (Nasdaq: NFLX), with 15 million couch potatoes on its rolls, is growing faster, but Sirius XM remains the only game in town when it comes to premium radio.

This doesn't mean that we can handily dismiss BGB's valuation argument. Sirius XM isn't exactly cheap as it now commands a hefty enterprise value of $12 billion. Several attorneys general ganging up with concerns over Sirius XM's billing and marketing practices will be a near-term distraction.

However, once again, Sirius XM's fundamentals continue to improve. When "valuation" becomes the lone arrow in a bear's quiver, you know you must be doing something right.

What do you think about all of the Sirius XM news this week? Share your thoughts in the comments box below.