Moody’s gives an upgrade to Sirius XM


The financial outlook for Sirius XM continues to get better and better. While the satellite radio company still carries a heavy debt load, Moody’s Investors Service has assessed its risks and given its credit ratings an upgrade.

Moody’s announced that it had upgraded Sirius XM Radio Inc.’s (Sirius XM) Corporate Family Rating (CFR) to Caa1 from Ca, Probability of Default Rating (PDR) to B3 from Caa3, and speculative-grade liquidity rating to SGL-2 from SGL-3. Associated debt ratings were also upgraded.

“The upgrades reflect Moody’s view that continued expected improvement in the company’s operating results and recent refinancing actions to term out debt have improved its liquidity position and significantly lowered near-term default risk,” the ratings firm said.

What’s improved? “Realized synergies from the merger of Sirius and XM and stabilization of the subscriber base is driving a significant shift in Sirius XM’s earnings performance, with EBITDA turning positive in 2009 for the first time in the company’s history. Sirius XM’s leverage remains very high (approximately 9.7x FY 2009 incorporating Moody’s standard adjustments) given the long-term capital reinvestment needs of satellite-based service providers, but the improved liquidity position provides management additional flexibility to execute its growth plan and potentially reduce leverage to a more sustainable level,” Moody’s said.

According to the ratings agency: “Sirius XM’s Caa1 CFR continues to reflect its sizeable debt burden and uncertainty surrounding the viability of subscription-based satellite radio and cash sustainability of the capital structure. The Caa1 rating also reflects Moody’s view that EBITDA less capital spending to interest expense will remain below 1x in 2010 and 2011 despite expected improvement in subscriber levels and EBITDA. Moody’s believes moving this interest coverage ratio to 1x or above will be critical in any consideration of the ratings for a further upgrade. Sirius XM indicated that free cash flow would be over $100 million in 2009, but Moody’s estimates the company would have been a user of cash absent a significant working capital inflow during the year. A reversal of some of the favorable working capital movements in 2010 along with the sizable interest burden and continued elevated capital spending to complete the construction and launch of two new satellites in 2010 and 2011 will be a drag on cash flow.”

The upgrade in the speculative grade liquidity rating to SGL-2 from SGL-3 “reflects the company’s improved cash position as a result of the positive free cash flow during 2009, and the level of cushion this provides relative to anticipated cash needs including the sizable 2010 capital spending budget,” Moody’s said. “Liquidity is bolstered by the minimal amount of maturities in 2010 (required annual term loan amortization is $2.5 million) and the absence of financial maintenance covenants in Sirius XM’s existing debt agreements,” it added.

Here are the upgrades by Moody’s:

..Issuer: Sirius XM Radio Inc.

….Corporate Family Rating, Upgraded to Caa1 from Ca

….Probability of Default Rating, Upgraded to B3 from Caa3

….Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

….Senior Secured Term Loan due December 2012, Upgraded to B1 from B3 (no change to LGD2 – 10% assessment)

….Senior Secured Notes due September 2015, Upgraded to B2, LGD3 – 33% from Caa2, LGD3 – 34%

….Senior Unsecured Notes due August 2013, Upgraded to Caa2, LGD5 – 76% from Ca, LGD5 – 77%

..Issuer: XM Satellite Radio Inc.

….Senior Secured Notes due June 2013, Upgraded to B2, LGD3 – 33% from Caa2, LGD3 – 34%

….Senior Unsecured Notes due August 2013, Upgraded to Caa2, LGD5 – 76% from Ca, LGD5  – 77%

Outlook Actions:

..Issuer: Sirius XM Radio Inc.

….Outlook, Changed To Stable From Positive