$150MM->XM protects it's infrustructure funding - SMART M

[snarf317]

$150MM->XM protects it's infrustructure funding - SMART MOVE

From the SEC filing this AM for $150MM and 11MM+ shares, it is clear that XM is protecting it's infrustructure and ability to provide clarity and funding for future SAT needs. This funding is IMHO, just insurance. This insures the $$ are there for the launches of new birds and when/if/after insurance settlements XM will use proceeds to "repurchase or pre-payment" of debt.

From the filing:

Quote:

Use of proceeds All or a significant portion of the net proceeds may be used for funding for the construction of our new XM−4 ground spare satellite if insurance proceeds are not received in a timely manner. We will otherwise use the net proceeds from this offering for working capital and general corporate purposes, which may include the repurchase or pre−payment of outstanding debt.

Joe E is insuring XMSR is not running with funding risk to critical SAT needs. This avoids Hege funds/shorts taking advantage while XM and insurance company go thru their insurance claims dances over the next 12-36 months.

Doug

[FrontMed]

[redhot47fl]

The timing of this announcement strongly suggests that management sees it as extremely good news that erases most concern about satellite replacement and wanted analysts and the rest of the Street to see it first thing on Monday morning.

I have a hunch that it might well trigger analyst upgrades.

[Guest]

Yes Front.

IMHO it also provides XM Sr. Mgt and XM Esq's to send a clear message to the insurance companies that XM does not have to rush to a settlement on the SAT claims that might not be "fair" in the view of XM mgt due to future squeeze to fund a SAT launch, etc.

Just the opposite is now true. XMSR shows strength to the insurance company and that XMSR will fight for the "fair" settlement vs a "quick" and much "less fair" settlement.

This funding approach, to insure SAT funding, protects XM from having to accept an un-fair settlement. Thus this saves XMSR equity holders from asset losses way more than any funding costs generated by this AM's announcement. Now XMSR is not by forced into a unfair settlement with the insurance company.

XMSR also makes clear that these funds are going to be used for capital/asset needs (non-short-term-expense).

Doug

[FrontMed]

[snarf317]

Woops. For some reason, I was not signed on during my last post above.

Doug

[mjszanto]

I still don't think the longterm net effect is diluting. The goal here is to minimize ultimate dilution.

[snarf317]

Front,
Yes. The market over reacted in a negative way during the day of the last conf call by XM due to the "insurance letter".

This funding is a "registered letter" back to the insurance companies by XM Esq's that XMSR will not roll-over and accept an unfair settlement.

XMSR mgt continues to play a good game of business chess and stays focused on the goal to subs thus profits.



Doug

[snarf317]

Net affect: Answer the fears that caused undue stock discounting after last XMSR cc.

Doug

[redhot47fl]

The announcement just hit the PR Newswire:




Legg Mason is Lead Investor in Acquisition of 11 Million Shares

WASHINGTON, Sept. 8 /PRNewswire-FirstCall/ -- XM Satellite Radio Holdings,
Inc. (Nasdaq: XMSR) announced today that it has priced a public offering of
11,320,755 shares of its Class A Common Stock to Legg Mason Funds Management,
Inc., Legg Mason Capital Management, Inc. and another large institutional
investor, each on behalf of its investment advisory clients.
(Logo: http://www.newscom.com/cgi-bin/prnh/20000724/XMSATLOGO )
Expected net proceeds will be approximately $150 million. The transaction
is expected to close on September 10, 2003. A copy of the prospectus relating
to the offering can be obtained from the company. All of the securities were
offered by the company.
XM expects that all or a significant portion of the net proceeds may be
used for funding for the construction of XM-4, its new ground spare satellite,
if insurance proceeds are not received in a timely manner. XM expects to
otherwise use the proceeds for working capital and general corporate purposes,
which may include the repurchase or pre-payment of outstanding debt.

[snarf317]

Also,
While putting this funding together, did this cause XMSR to be in a "quiet period" that might now be over?

I'd bet AFTER 9/11/2003 that the PR stream will be flowing again.

A lot of sad thoughts and business deflection will be occuring (rightly) in the news between today and 9/12. 911 should not be forgotten. Thus I'd think there is no reason to let PR's get lost in the 9/11 focus over the next 96 hours. Any major PR flood will occur IMHO after 9/11.

I'd bet 9/12 and next week, week of 9/15, will see the XMSR news start...via PR's.

Doug

[Capn]

This is the move that I expected XM to make, i.e. put the XM-4 funding issue (risk) to bed, relieve themselves of time pressure in negotiating for the insurance settlement. And I am glad they did not take on more debta as I think they are leveraged high enough already. A smart move IMO. However...

I am not sure I can say the same about the timing. In fact I expected them to do this after the 1M campaign when the stock price was over $15. So you might conclude that either...

1. They think the stock price is about as good as it will get in the next few months due to market movement or perhaps unimpressive 1M milestone date, or something we don't know about yet.

2. To sell this many shares at said discount to market price they needed to sweeten the deal by offering at the pre 1M mark price.

3. They don't have the time to wait 1 more month because of a window of opportunity a Boeing to start construction of XM-4.

[snarf317]

I think the 1MM subs is priced into the stock. I don't think SAT funding was. As the saying goes, we can't have our cake and eat it too.

(I never did understand that saying as a kid, if I eat the cake I have/had the cake, but I guess it means after you eat the cake it is gone?)

Together, raising YE03 expections AND having SAT funding solved will IMHO raise value of this equity. Again, IMHO it takes both items mentioned in the last sentence to cause the result you desire.

Doug

[mjszanto]

These private investors know about the one million mark as much as we do, and the possibility that the stock will go up. XM got the 13.20 price, based on the realization that $13 is basically now a stock floor. And it is always also a chicken and a egg type thing with this type of funding. Without the funding, XM is less funded and worth less. With the funding XM is worth more. Clearly we've come a long long way since December, but as long as XM is still in the red, AND XM has debt it's leverage will be less than ideal. But its leverage is growing rapidly.

[mjszanto]

I used leverage not in the strict financial sense, but rather in the sense of having bargaining strength. It is the difference between having leverage (good) and being leveraged (potentially bad).