New Financing Boosts XM Radio
Company principals have worked overtime the past few months to seal a deal that would enable them to stay in business long enough to carve a viable share of the nascent satellite radio business. Once rumored as a candidate for bankruptcy, XM Satellite Radio Holdings, Inc. has secured funding in two parts: $200 million from investors and $250 million in payment deferrals and credit facilities from General Motors Corporation, a major XM investor and parent company of Hughes Electronics, owner of satellite broadcaster DirecTV.
Both XM and competitor Sirius Satellite Radio, Inc. have struggled to build a market for their services, and to stay alive under crushing burdens of debt brought on by years of development work. Earlier this fall, Sirius avoided defaulting on some of its debt by securing a $1.2 billion funding package.
Details of the XM package include $200 million in "10% senior secured discount convertible notes due in 2009 and a small common-stock sale," according to Bruce Orwall of the Wall Street Journal. Purchasers include American Honda Motor Co., Hearst Corporation, and others. GM's concessions include deferring $115 million in payments that it would receive from XM between 2003 and 2005 as part of a distribution agreement. In exchange, GM will receive $89 million in convertible notes. GM will provide XM with $100 million credit, and XM can satisfy up to $35 million in future obligations to GM in stock rather than cash, Orwall notes. GM clearly believes that satellite radio has a bright future. The automaker is offering XM receivers as optional equipment on approximately two dozen new models for 2003.
XM has approximately 350,000 subscribers, and hopes to have 1.2 million by the end of next year. Most of the new money will be funneled into sales and marketing efforts, according to chairman Gary Parsons. "Clearly the company has needed additional funds to push through the early development phase," he said.
XM received an additional holiday gift on December 9, when car rental agency Avis announced that it would offer XM satellite radio for its customers beginning in the first quarter of 2003. Avis is adding about 50,000 XM-equipped GM vehicles to its US fleet, and will charge its customers an "introductory rate" of $2.99 per day for the service.
XM hopes to reach break-even sometime in 2004.