October 24, 2012 / 7:50 PM / in 5 years

TEXT-S&P comments says Sirius XM ratings unaffected by CEO departure plans

Oct 24 - Standard & Poor’s Ratings Services said today that its rating and outlook on Sirius XM Radio Inc. (BB/Stable/--) is not currently affected by the announcement that the company’s CEO will depart on Feb. 1, 2013. Liberty Media Corp. plans to increase its stake in Sirius XM to more than 50% from 49.5%, gaining a controlling position, subject to Federal Communications Commission approval. We believe Liberty could pursue a more aggressive financial policy if it controls the board of Sirius XM. We anticipate that as a result, debt leverage could increase over the near term, and could also increase if Liberty Media’s ownership input leads to debt-financed dividends, acquisitions, and/or share repurchases. However, at this time we do not believe leverage will increase above our 4.5x target for the current rating. Sirius XM’s lease-adjusted gross debt-to-EBITDA ratio, pro forma for the September 2012 redemption of its 9.75% senior secured notes and 13% senior notes, declined to 3.2x as of June 30, 2012, from 4.5x as of June 30, 2011, as a result of good operating performance supported by 9% growth in subscribers and the 12% price increase for its basic monthly service in January 2012. We also believe that Liberty Media’s likely control of Sirius XM could result in more aggressive pricing and evolving digital strategies, the effect of which may not be clear for some time. Although not currently expected, we could lower our rating to ‘BB-’ if we are convinced Sirius XM will adopt a more aggressive financial policy that elevates gross debt leverage to over 4.5x on a sustained basis. We currently do not see upgrade potential over the intermediate term until more clarity emerges regarding Liberty’s future role and strategies.

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