Research notes from Deutsche Bank
February 6, 2007
In a note issued today, James Dix of Deutsche Bank spoke of a possible sale and leaseback option for XM's most recently launched satellite XM-4. Dix sees it as a transaction to help liquidity.
Report Excerpt:
Sale-leaseback would affect liquidity, not merger
Looking at possibility of sale-leaseback transaction. Per channel checks, we believe that XM may be pursuing a potential saleleaseback transaction involving the XM-4 satellite it launched late last year. Of course, it may not conclude a deal. Assuming satisfactory terms, we would likely view such a transaction as a modest positive, given its impact on liquidity.
Impact of 2006 sub shortfall on cash is already known
Given that XM finished 2006 with 7.6m subs, vs the 9.0m sub guidance it gave at the beginning of 2006, its sub revenue base for 2007 is roughly $170m less than contemplated at the beginning of 2006. Even after SAC, we estimate the incremental negative impact on year-end 2007 cash could be roughly $100m. Thus, it is not a surprise that the company would be pursuing additional liquidity. The company in fact carved XM-4 out of the security for its financing in the spring of 2006, which would facilitate a saleleaseback transaction now. We estimate the carrying-value of the satellite at $240m, which includes value for the launch vehicle and in-orbit insurance (for 18-24 months, we believe). The launch was good, and thus we estimate XM-4's useful life at this point is at least 15 years. |
