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Sirius XM Holdings (NASDAQ:SIRI), the New York City-based radio company, could be willing to extend its leverage ratio for the right acquisition opportunity, CFO David Frear said Tuesday.
At the BofAML Global Telecom & Media conference, hosting analyst Jessica Reif Cohen estimated the company’s leverage to be around 3.6x, with it previously having targeted a ratio to be around 4x, and asked if this was more of a ceiling than a target. Frear said the leverage ratio was not an absolute limit and it was not constrained in this regard.
He said the company intended to run at a strong BB credit rating, explaining that the loosening up of Moody’s in relation to SiriusXM’s recent debt offering gave it more room on the upside.
“If we found a particularly interesting and accretive M&A opportunity, I would go north of 4[x] in a heartbeat because I do think that with an accretive M&A opportunity we would fairly quickly delever going forward,” the CFO said. “So really it isn’t a ceiling, the difference between 3.6[x] and 4[x] isn’t a whole heck of a lot of money and…certainly for the right opportunity we would be comfortable going above it.”
Asked if the company would increase its leverage over 5x providing it could get it back down within a 12 to 18-month period, Frear replied affirmatively.
“As long as I felt exactly as you stated that I could get it back down into the range of which the rating agencies will be confident that our rating would be maintained as a strong BB,” he added.
Later at the conference, the analyst asked in which areas SiriusXM would pursue acquisitions and if it would look at bolt-on telematics deals.
“On the telematic side, there are a lot of interesting stories out there, none of them that are terribly large scale, we have looked at a lot of things over the last two-years, we obviously found one to buy in the connected vehicle business from Agero and we continue to look at other opportunities. We will see what happens,” the CFO replied.
He noted that SiriusXM was highly unlikely to buy streaming companies or a terrestrial radio business.
SiriusXM bought Agero’s Connected Vehicle Service business in 2013 for around USD 530m.
SiriusXM provides commercial-free music; premier sports and live events; news and comedy; talk and entertainment; and a range of Latin commercial-free music, sports, and talk programming. Its products are available in vehicles, smartphones and other connected devices, as well as online.
The company announced last month that it and Sirius XM Radio, its operating subsidiary, had entered into agreements with Sirius Canada Holdings (Sirius XM Canada) to recapitalize Sirius XM Canada (TSX:XSR). SiriusXM and certain Canadian shareholders will form a new company to acquire shares of Sirius XM Canada not already owned by them pursuant to a plan of arrangement, a press release on the matter said.
Prior to purchasing Agero’s service business, SiriusXM’s M&A efforts had been light for several years.
The company’s financial and legal advisors on the recapitalization, respectively, were JPMorgan and Norton Rose Fulbright. Morgan Stanley and Simpson Thacher & Bartlett advised on multiple earlier transactions including the Agero deal, according to the Mergermarket M&A database.
SiriusXM’s General Counsel Patrick Donnelly was previously an associate at Simpson Thacher.
SiriusXM has a market capitalization of USD 19.8bn.
As seen in the mergermarket newsletter on 08/06/2016