You have to give Sirius XM Holdings (NASDAQ:SIRI)some credit -- and at a low rate, to boot. The only game in town when it comes to satellite radio announced plans to offer $750 million of Senior Notes due 2025 to qualified institutional buyers on Tuesday morning. By the end of the day it had bumped the issued debt to $1 billion based on heavy demand, pricing at a compelling 5.75% annual interest rate.
There is little doubt as to what Sirius XM will do with the money. It has taken advantage of its improving credit rating and the low interest rate climate to borrow money that it can use to either buy back stock or pay off debt issued earlier at higher rates that will mature sooner.
It is certainly good to be Sirius XM these days. Six years ago, the company was on the ropes. It needed money, and it had to pay dearly to get it. It raised a little more than half as much as it did on Tuesday, paying nearly three times the interest rate. Making matters worse, it had to hand over a 40% preferred share stake to Liberty Media just for the right to borrow at that 15% rate, a move that boosted the effective number of Sirius XM shares by 60%.
Liberty Media made out like a bandit, but you do not see too many Sirius XM shareholders complaining. The shares were trading for as little as $0.05 at the time with the threat of bankruptcy looming. The stock has gone on to become an 80-bagger off of that 2009 low.
Sirius XM stock hit a new 52-week high of $4.04 on Tuesday's financing news. This is not an all-time high. It traded as high as $4.18 in late 2013 when it seemed as if Liberty Media was going to snap up the company. Shares of Sirius also traded in the double digits during the dot-com bubble days. Then again, it had far fewer shares outstanding at that time.
Its market cap was eventually bulked up after a painful recapitalization, followed by the 2008 merger with XM that doubled the outstanding shares count and the dilutive Liberty Media bailout of 2009. Yes, more share equivalents were dished out in the Liberty Media financing than it had to put out to snap up XM a year earlier.
The past is not always pretty, but the present and the future are plenty bright.
Rockin' around the clock
Sirius XM is in a good place. It is coming off another solid quarter fueled by a 9% uptick in revenue that translates into an even sweeter 17% spike in adjusted EBITDA. The beauty of its scalable model is that a little top-line growth usually results in an even greater improvement on the bottom line. It costs little to service incremental listeners beyond the costs to attract them in the first place.
Sirius XM is on a hot streak of 16 consecutive quarters of profitability -- according to S&P Capital IQ data -- and it shows no signs of cooling as long as its subscriber count keeps climbing. Sirius XM closed out 2014 with 27.3 million subscribers, and it is forecasting a conservative 28.5 million accounts by the end of this year.
The recent debt offering will help make it that much more attractive, arming it with the funds to either buy back shares or lower its interest expenses -- a win-win move for Sirius XM and its stakeholders.