This is the second part of a post from two weeks ago. I will repost Part 1 which dealt with the converts if you missed it. This discussion started when I said SIRI would buy back 10% of its shares and Homer said the bond holders would not permit it. Today we deal with the nonconverts.
The bonds due in 2013 were issued in the aftermath of the merger when SIRI was desperate for financing. They carry a coupon rate 9.625 and were issued at a discount to yield an even higher rate. The bond contains all sorts of onerous conditions which protect the bondholders and reflect the dire financial conditions of the company. Now if the bonds had been issued by the Land of the Duke I could waive my golden scepter and reduce the interest rate and remove those onerous conditions. Wouuldn't be nice if SIRI could do the same.
Here is the news, they can do that and will. You see folks these bad bonds have a call date of 2/25/10 which means that SIRI can and will call these bonds for a 2% early call premimum. They will be refied at a lower interest rate and with all the good news on SIRI the buyback restrictions are going to disappear. Want proof? The bonds are selling at 101-102, above par reflecting the Feb buyback. SIRI will announce the refi soon but the KEY is to see if they issue FEWER bonds. If they do, they will have reduced the debt and the stock will rocket again.
The 2011 bonds are simple, every time S&P upgrades the co., like they did this week, the bonds surge in value so they will agree to a waiver since it is clear SIRI can pay them off. These bonds are held by junk bond funds who now can sell them at a huge profit, if they do not want to hold them to maturity. The capital gain is larger than the interest.
Here is how LiveNation fits in with SIRI. First SIRI will have the ability to carry live concerts. More money for the bands, promoters and more subs for SIRI among a younger demographic that SIRI has yet to penetrate. But the real big news--pay per listen. Remember when you could not get a ticket to the Stones or Springsteen concert because they sold out in six seconds. Listen live for a fee and watch everyone connected make gazillions.
On 12/31/09 I told you we were about to begin a 50% move when we were at 60. It has only been 47% so far so I guess I owe you some. I told you 2010 would bring a change in the press coverage for SIRI. You be the judge. I told you when the stock hit 76.9 to trade the gap and it went down to 66.5. Friday I told you to trade the stock because there would be a pullback--88.24 down to 80.5. Pretty good. But here is the one you all MISSED. Back on 11/15/09, I posted Upgrades, downgrades, news and the accumulation process, which I will repost, in which I told you there was resistance between 85/90 and told you to sell between 88/89 because of a pullback in the stock. So how did The Duke predict it two months before it happened? If you believe that "this in all in the charts" then maybe The Duke is the only one who can read the charts. Or maybe this has something to do with due diligence and how you really do it as a pro. You might want to think about that.
We have a 40% chance of going down to 77/79 before we make the run to a dollar. Do not play the selloff. If we get it, buy more. Stop with the R/S crap and move onto another topic--like what will Homer get wrong this week.