SIRIUS IS REJUVENATED IN $1.2 BILLION RECAPITALIZATION DEAL
Sirius Satellite Radio shares Thurs. began rebounding on late-afternoon announcement company had reached $1.2 billion recapitalization agreement with major investors. Sirius spokesman said deal, which would bring company enough cash to fund operations through 2nd quarter of 2004, would put to rest all rumors on company’s questionable future.
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Agreement would convert $700 million of debt and $525 million of preferred stock into common shares. Additional $200 million cash would be raised from sale of new stock. Cash would be supplied by investors Oppenheimer ($150 million) and affiliates of Apollo Management and Blackstone Group ($25 million each). At deal’s completion, Apollo and Blackstone Group would exchange all of their existing convertible preferred stock for common shares and warrants to purchase common. New cash, combined with $240 million in funds already on hand, would give Sirius sufficient funding for operations into 2004’s 2nd quarter, year later than it would have burned existing cash resources if no new funding deal had been reached. It also said it would continue evaluating initiatives that would enable company to achieve cash flow breakeven without need to raise additional funds.
On completion of deal, Sirius debt would be exchanged for 62% of common shares. Existing preferred shares would be exchanged for 8% of common, while providers of new funds would own 22% of common and of existing common would hold 8% of recapitalized equity. Existing holders of preferred shares would be given warrants to buy 9.1% of common at average “strike” price of just under $1 -- value of Sirius shares just before Thurs. announcement. Deal is contingent on several conditions, including regulatory approval, but when completed would give Sirius “the strongest balance sheet in our industry,” CEO Joseph Clayton said. He said that, more importantly, deal would allow company to “focus 100% of our energies” on building subscriptions.
Clayton told conference call that recapitalization deal was “remarkable achievement” in light of current economic environment. He said deal would allow Sirius to reach cash flow breakeven in 2005 on base of 2 million subscribers. CFO John Scelfo said deal was expected to be completed by early 2003 and would reduce company’s funding gap to $75 million from $600 million.
Sirius again scaled back 2002 subscriber projections to 30,000-40,000 from earlier forecast of 75,000, Clayton said. Current subscriptions stand at about 14,000, he said, but growth has been hampered by soft CE retail market and lack of Sirius plug-and-play receivers, which he said accounted for 30-35% of overall retail sales volume of rival XM. Clayton said volume availability of Sirius plug-and-play units was expected starting in 2nd quarter next year. It was unclear at our deadline why Jensen-branded plug-and-play receiver introduced at last Jan. CES hadn’t materialized in time for 2002 holiday selling season as planned. Clayton said Sirius now projected total subscriptions would grow to 400,000 by end of 2003 when all of company’s distribution channels would have been “fully established.”