Sirius XM Makes the Most of Borrowed Time


Don't be surprised if the interest expense line on Sirius XM Radio's (NAS: SIRI) income statement continues to shrink. The satellite-radio provider will retire some of its debt next month. The $681.5 million in senior notes weren't due until next year, but why keep shelling out interest at 13% if you don't have to?

The fundamentals have improved dramatically since the notes were originally offered, and it doesn't hurt that current interest rates are dirt cheap. Earlier this month, Sirius XM priced an offering for $400 million worth of senior notes that don't mature until 2022. The media giant had to cough up just a 5.25% interest rate on the new debt.

Using cheaper money today to retire costlier debt is a smart move, but it also pushes out the company's financial obligations. Once Sirius XM cashes out its 2013 senior notes next month, it doesn't have another maturity milestone to worry about until the end of 2014.

Sirius XM can do a lot with its money between now and then, and a good chunk of it will probably go toward share buybacks once Liberty Media (NAS: LMCA) assumes majority control of the company. Anything Sirius XM can do to keep its float in check while reducing the number of shares outstanding will be in the best interest of its shareholders.

Sirius XM can't control every aspect that will dictate success. It can't get consumers to buy more cars. It can't stop Pandora Media (NYS: P) and smaller online streaming companies from growing faster than satellite and terrestrial radio. However, the one thing Sirius XM can do its manage its balance sheet and make sure the transition to Liberty Media's inevitable majority control is a smooth one.

Paying down debt with double-digit interest rates while offering new debt at much lower interest exposure is the smart thing to do.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

I also just put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors that are both long and short the dynamic media giant. A year of updates is also included with the report. Check it out now.

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