View Single Post
  #9  
Old 07-13-2005, 01:39 PM
player24 player24 is offline
Senior Member
 
Join Date: Feb 2005
Posts: 190
Default Re: What is going on with Sirius?!?!

S&P Credit Report:

Credit Rating: CCC/Stable/--

Rationale
The very low speculative-grade rating on New York, N.Y.-based Sirius Satellite Radio Inc. reflects the company's substantial debt load, large projected EBITDA and cash flow deficits for this start-up business for at least the next couple of years, and increased rivalry for exclusive programming and subscribers that may continue to raise both operating costs and the number of subscribers needed to reach break-even cash flow. These risk factors are not meaningfully offset by the near-term benefit of Sirius' sizable liquid assets and operational progress.

Sirius' subscriber growth has improved as it has filled some important product line gaps, secured more meaningful installation programs with its exclusive automotive partners, and expanded its retail distribution. Even so, its only direct competitor, XM Satellite Radio Holdings Inc. (CCC+/Stable/--), has more than twice as many total subscribers and faster unit growth because of its stronger automotive partner support and product innovation. Sirius' growing roster of exclusive content has improved its product appeal somewhat, but these deals may not generate enough growth to justify the high cost.

Sirius' subscriber base increased 338% in 2004 and 237% in the first quarter of 2005, putting it on track to reach its revised year-end goal of 2.7 million users (up from its original estimate of 2.5 million). Higher subscriber levels are producing strong revenue growth, but the fast growth is also pushing EBITDA losses higher as subscriber acquisition costs (SAC) are rising significantly even as they decline per new user.

The company's EBITDA loss (before equity grants) for the 12 months ended March 31, 2005, was considerable, at $505 million, compared with $456 million in 2004. EBITDA losses after equity grants to third parties and employees were even more substantial, at $653 million for the 12 months ended March 31, 2005, and $583 million in 2004. The company's discretionary cash flow deficit for the 12 months ended March 31, 2005, was also substantial, at $412 million, even with the benefit of large noncash equity expenses and subscriber prepayments.

Sirius' ability to reach break-even cash flow will require substantially more subscribers, continued significant reductions in SAC per new user, and cost discipline. Sirius' SAC per new user should continue to gradually decline with volume efficiencies and the pending introduction of next-generation chipsets. Debt levels are substantial, at $656 million at March 31, 2005, but interest costs are mitigated somewhat by the predominance of low-coupon convertible notes (90% of its debt at March 31, 2005).

Liquidity
Sirius' liquidity relies on its sizable liquid asset balances and access to the capital markets, because the company is not expected to generate positive discretionary cash flow for at least two more years. Substantial liquid resources are critical, as access to the public debt and equity markets is unpredictable. Sirius' money-draining growth phase may extend longer than currently expected, especially if it makes additional large investments in programming or distribution. As of March 31, 2005, Sirius had $629 million in cash and equivalents. A proposed $250 million second-quarter note offering remains on hold but could be revived if market conditions improve. Near-term debt maturities are moderate compared with the company's current liquid resources, with $29 million in bonds maturing in 2007 and $67 million in convertible notes (which are currently in the money) maturing in 2008.


Outlook
The stable outlook on Sirius reflects its operational progress and the near-term flexibility provided by its liquid assets. A disruption of its operational progress or the failure to maintain meaningful liquid resources could lead to a revision in the outlook to negative. Conversely, achieving a positive outlook will require continued momentum in building its subscriber base, success in significantly lowering its SAC per new user, and cost discipline.
Reply With Quote