The combination of relatively low leverage and a resurgent automobile industry have inspired Moody’s Investors Service to upgrade satellite audio service Sirius XM’s ratings. It says the company is on a stable footing.
Moody’s has upped the company’s Corporate Family Rating from B1 to Ba3, and its Probability of Default Rating from B1-PD to Ba3-PD. The upgrade is based on good growth prospects over the next 18 months along with expectations that its leverage will remain in good shape.
Moody’s credited the addition of some 2M subscribers during the course of 2012 as the basis of the improvement, helping to increase operating margins, EBITDA and free cash flow.
Leverage, at 3.0x debt-to-EBITDA, is a strong point, and represents an improvement from 4.6x as of the end of 2011. However, it may increase, says Moody’s, due largely to share repurchasing. Moody’s says management is targeting a 3.5x level.
Looking ahead, Moody’s said its analysts “…expect deliveries of light vehicles in 2013 to climb to 15.25 million units. Growth in new vehicle deliveries and modest economic recovery should support net self-pay subscriber additions over the next 12 months. Moody’s expects EBITDA in 2013 to increase above the $894 million reported for 2012 (including Moody’s standard adjustments) accompanied by reduced capital spending in the years leading up to the next satellite launch cycle. Continued growth in the subscriber base will drive EBITDA increases and could better position the company to fund the next cycle of significant expenditures related to construction and launching of replacement satellites beginning as early as 2016 so long as share repurchases and dividends are maintained within prudent levels.”
Moody’s stated that a downgrade could be in the works if leverage edges past 3.75x, or if general economic or competitive pressures damage the company’s level of income.
