S&P places Sirius XM ratings on watch positive

NEW YORK - Standard & Poor's Ratings Services on Tuesday placed its 'CCC' creditworthiness rating on Sirius XM Radio Inc. on CreditWatch with positive implications, after Liberty Media Corp. agreed to make a $530 million investment in the satellite radio provider, saving it from bankruptcy.

Liberty will provide a $280 million senior secured loan to Sirius, $250 million of which will be funded on Tuesday. Sirius will use the proceeds to repay $172 million of its maturing 2.5 percent convertible notes that had been due. The rest will be used for general corporate purposes.

The second phase of Liberty's investment provides another loan of $150 million to Sirius XM. Liberty has also agreed to offer to buy up to $100 million of the loans outstanding under Sirius XM's existing credit facilities.

S&P said Sirius still faces significant debt maturities in 2009, with $350 million of XM bank debt coming due in May and $227.5 million worth of XM 10 percent convertible senior notes due in December.

In addition, Standard & Poor's believes the company may encounter significant obstacles in meeting its 2009 financial targets of $300 million of EBITDA and modestly positive free cash flow, considering the sharp decline in U.S. auto sales and the weak retail consumer electronics market, which may slow subscriber growth.

But S&P said it may upgrade the company's corporate credit rating one notch to "CCC+," four notches above default, if Sirius demonstrates progress toward achieving sustainable profitability and positive discretionary cash flow, and addresses its sizable remaining 2009 debt maturities.

Separately, S&P said Liberty Media's 'BB+' rating, which is one notch below investment-grade, remains on watch negative in the wake of its deal with Sirius XM.

"Liberty Media's investment in Sirius XM currently does not affect our prospective rating outcome following the split-off of LMEI," said Standard & Poor's credit analyst Andy Liu in a statement. "We still expect to lower our rating on Liberty Media to 'BB-' with a negative outlook. However, given that SIRIUS faces maturities above and beyond Liberty Media's investment, as well as significant operating challenges, a further financial commitment by Liberty Media could affect our rating on the company."

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