Mel confident of refinancing


Sirius XM has to refinance over a billion dollars in debt next year. CEO Mel Karmazin insisted yesterday at the Dow Jones/Nielsen Media and Money Conference in New York that the satellite radio company will able to get that refi done, even in the current tough credit market.

“The companies that get rewarded today have a great balance sheet. That’s not us today, but that’s us in the future,” Karmazin was quoted as telling the gathering by David Kaplan writing for He said the company has begun talks with its lenders on refinancing and expressed confidence that Sirius XM would be able to get its debt refinanced. The merged company has $2.1 billion in debt, of which about $1.1 billion has to be refinanced in 2009. The first chunk, $300 million, comes due in February.

Sirius XM is now heavily dependent on the auto industry to get new receivers into the market and, thus, new subscribers. But the CEO insists that the drop off in new car sales won’t be a problem. In a worst case scenario, he figures 12 million cars will still be sold and half will leave the factory with a satellite radio receiver in the dash. About half then will be converted to paying customers. “That will get us up to $300 million revenue growth even if Detroit has a very bad year. Even in a market where cars are not doing well, we can still feel successful,” Kaplan quoted Karmazin as saying.

Don’t expect to see Karmazin show up on Capitol Hill to embrace Rep. Ed Markey’s (D-MA) requiring satellite receivers to also receive HD Radio signals from AM and FM stations. The Sirius XM CEO denounced the idea, claiming it would drive up new car prices.

RBR/TVBR observation:
$1 billion+ refi? We’ll believe it when we see it. First Mel has to get Sirius XM into positive EBITDA for the first time in the history of either of the merged companies. The math detailing all of the synergies from combining Sirius and XM into a monopoly satellite radio company doesn’t mean a thing until the savings become real and the company finally starts spending less on operating costs than it is bringing in from subscriptions and advertising. And even once that difficult hurdle is cleared, Mel still has to persuade lenders that satellite radio is worth financing at a time when many, many companies with much better balance sheets are looking to borrow. If he can find money to borrow, just how much will it cost?