Posted on 05/27/2008 7:43:07 AM PDT by raccoonradio
When XM Satellite Radio signed its 8-year deal with Major League Baseball, part of the terms included an annual payment of $60 million plus a $120 million escrow account. XM now faces a serious hurdle - the surety bond for the $120 million expires June 30, and XM has replaced that bond by using $57.5 million in available cash and taking out a $62.5 million loan.
According to the Washington Post, that move reduces XM's liquidity, and according to a filing with the Securities & Exchange Commission, "could have an adverse effect on our financial position if we are not able to replace the escrow arrangement with a letter of credit, surety bond, or other arrangement." XM's 2005 arrangement with Major League Baseball was one of their cornerstone agreements, along with signing Oprah Winfrey - and no doubt when the merger plans with Sirius were announced in February 2007, XM thought they'd now be combined into Sirius.
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/25/AR2008052501702.html
>>XM Radio's search for financing comes in the midst of a tight credit environment as well as its efforts to merge with Sirius. The Justice Department cleared the marriage in March, and the deal awaits final regulatory approval by the Federal Communications Commission. After a long-delayed review of the merger, which was announced in February 2007, FCC Chairman Kevin J. Martin said the commission may reach an agreement by the end of June.
Under their merger agreement, XM and Sirius are restricted in their ability to incur additional debt financing beyond existing credit lines and are limited in the amount of new equity they can issue without first getting each other's approval.
That sounds
This is hugh! And Sirius! :)
from Tom Taylor’s radio-info.com column (free subscription via email):
XM is stretching – really stretching – to cover its obligations to Major League Baseball.
Call it “staring at an 0-2 pitch”, maybe. This is one of those outsize content deals that a merged XM+Sirius would be in a better position to field. But XM’s hustling because of an upcoming obligation to MLB. In 2005, it agreed to pay the league $60 million a year and also – here’s the catch – to keep $120 million stashed in an escrow account. At that time XM and Sirius were waging one of their periodic bidding wars (Sirius snatched NASCAR away from XM).
XM has been satisfying the MLB requirement with a surety bond for the $120 million. But that bond expires June 30 and XM tells the SEC it just created a new escrow account the hard way, with $57.5 million of its own precious cash and $62.5 million in borrowed money. But that act “could have an adverse effect on our financial position” if the amount’s not replaced with “a letter of credit, surety bond, or other similar arrangement.” But there’s more buried in the XM filing blandly labeled “other events.” XM’s still holding a $150 million line of credit provided by General Motors – but that can only be used to make payments back to GM. XM now says “we expect to begin utilizing the GM credit facility in June 2008.” So what does that mean? The company maintains it will meet the important “fully funded” standard as long as it hits its revenue, expense and cash flow projections. But what it’s really hoping for is help from the Portals – the FCC. Last Friday Chairman Martin indicated the agency “could act by the end of the second quarter” on the merger request. What’s the hangup? Conflicting conditions demanded by the various Commissioners.
As much as I love XM, and baseball on XM - it doesn’t seem to me that this is a business model that is viable.
I’ll miss it when it finally does fold.
They spent too much on Oprah.
I heard this morning on the radio that the MLB was sending out cease and dessit orders to liitle leaguers using MLB team names such as Red Socks, Giants, Cardinals, etc.
MLB can go out of business.
I can believe that...
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