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Financials and Debt

From the article "I'm Still Bearish on Sirius XM" By Tim Beyers, April 6, 2009 http://www.fool.com/investing/high-growth/2009/04/06/im-still-bearish-on-sirius-xm.aspx

"-Beware the debt delusion See, while a $530 million capital infusion supplied by Liberty Media (Nasdaq: LINTA) and accompanying bank lines supplied by a syndicate led by JPMorgan Chase (NYSE: JPM) and UBS (NYSE: UBS) gives the company time, it doesn't solve the long-term problem. Look at the math.

Liberty gets 40% of Sirius XM upon conversion of its preferred stock, which means that the satrad star's 3.9 billion shares outstanding will balloon to 6 billion sometime between now and 2012, when the loan expires. That's a huge problem for existing investors. Dilution has the mathematical effect of demanding ever-higher rates of growth in order to produce meaningful returns.

Here, it's as if patient Sirius XM investors, shivering as they wait in the cold, hoping at last to buy a ticket to see the Hottest New Act in Town, were then told to move to the back of a three-mile-long line.

And that's not even the biggest problem. Sirius XM is now on the hook for paying 15% a year over four years on $530 million in new debt. That's close to $80 million a year. For perspective, consider that Sirius XM paid $137.5 million in cash interest on $3.3 billion in debt during 2008.

Talk about scary math. Debt payments could double before revenue does, which means that future refinancings are virtually guaranteed. Can you imagine the next deal? Liberty's 15% cut could look cheap once a government-funded bout of hyperinflation kicks in."

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