DBRS Comments of Liberty Media’s $530 million Investment in Sirius XM Radio

DBRS believes that today’s announcement by Liberty Media Corporation (Liberty Media or the Company) to invest $530 million in Sirius XM Radio Inc. (Sirius XM) is, as with most of its investments, both opportunistic and strategic. DBRS notes that this investment will be attributed to Liberty Media’s Liberty Capital group.

DBRS believes this is an opportunistic investment as in exchange for two phases of loans from Liberty Media that will help Sirius XM complete some much needed refinancing, Liberty Media will receive 12.5 million shares of preferred stock that will be convertible into 40% of the common stock of Sirius XM. This will also give Liberty Media two seats on the board of Sirius XM, with John Malone and Greg Maffei expected to fill these positions. Additionally, DBRS notes that one of the goals of Liberty Capital has been to look for opportunistic media investments. DBRS believes this opportunity to invest in Sirius XM has availed itself as a result of the current malaise in the media industry, coupled with challenges in the credit markets.

From a strategic perspective, DBRS notes that Liberty Media will have greater influence over Sirius XM as a result of the investment. Currently, Liberty Entertainment’s DIRECTV uses this radio content as an add-on to the video service that DIRECTV provides to its 17.6 million U.S. subscribers. Additionally, Liberty Media has likely thwarted the efforts of its satellite competitor, DISH Network Corporation (DISH), in gaining such a position. DBRS notes that DISH Network had been buying debt positions in Sirius XM in recent months possibly looking to be an influencer in Sirius XM either under its current capital structure or through a possible restructuring.

As this investment will be held at Liberty Capital, DBRS notes that it will not affect or be part of the previously announced split-off of a portion of Liberty Entertainment. It is this split-off (first contemplated in September 2008 and confirmed in December 2008) that drove DBRS on September 4, 2008 to place the BBB (low) ratings of Liberty Media’s wholly-owned subsidiary, Liberty Media LLC, Under Review with Negative Implications. DBRS remains concerned that the remaining debt at Liberty Media will have weaker asset coverage following the Liberty Entertainment split-off to shareholders.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Media and Entertainment, which can be found on our website under Methodologies.

This is a Corporate (Publishing & Media) rating.