Commenting on CEO Mel Karmazin’s upcoming departure in February, Moody’s Investors Service said that Sirius XM should have no immediate impact on its ratings nor outlook: “The B1 Corporate Family Rating and stable rating outlook incorporate event risk related to developments in controlling ownership and assumes near term changes in the corporate structure, including composition of its board of directors and executive management, will not adversely impact the company’s operating strategy, credit metrics, or financial policies. A search committee for the new CEO has already been formed by Sirius XM’s board of directors.”
On August 8, 2012, Moody’s upgraded the Corporate Family Rating of Sirius XM to B1 and assigned a stable rating outlook based on its expectation that debt-to-EBITDA ratios will improve to less than 3.75x (including Moody’s standard adjustments) driven by continued net subscriber additions and improved automotive sales accompanied by reduced capital spending in the years leading up to the next satellite launch cycle. Moody’s upgraded the CFR and related debt instrument ratings due in part to management’s confirmation of its leverage target, despite uncertainties related to the timing or the final form of the company’s eventual corporate structure including a controlling position by its largest shareholder, Liberty Media Corporation, or a potential tax free spin-off.
Moody’s, however, also reiterated its belief that Sirius XM is subject to event risk including Liberty Media completing its plans to control Sirius XM with at least 50% ownership interest in the near term and potentially adding to its board seat representation with the intent to be deemed by the FCC as having control of Sirius XM. As a portfolio company of Liberty Media, they believe Sirius XM faces greater risk from equity focused financial policies, including dividends and share repurchases.
